whoopazz Posted June 12, 2007 Share Posted June 12, 2007 Sorry for the long explanation, but: OK, I have a chunk of change in a GTMA (gift trust to minors act) account that I started for my kids ten years ago. This is essentially two mutual funds in my kids names. I also have a North Carolina 529 plan in which I have socked away some bucks recently. Well, now the oldest is ready to go to college and I'm trying to figure out the best way to proceed. The GTMA account is in her name and counts against her heavily when trying to secure financial aid, so I want to rid myself of that. However, I dont know what the tax implications are for taking out the whole wad and spending it all right now for the first year of tuition. I suspect it would be better if I could roll it over to the 529, and get on the University's monthly payment plan, but I'm lost here on whether or not I can do this. I have enough cash in the GTMA to pay the whole freshman year. The cost to get into the monthly payment plan with the University is a flat $55 fee, with no interest. TIA for any advice. Quote Link to comment Share on other sites More sharing options...
AtomicCEO Posted June 13, 2007 Share Posted June 13, 2007 The GTMA account is in her name and counts against her heavily when trying to secure financial aid, so I want to rid myself of that. Does a 529 count against you for financial aid? Quote Link to comment Share on other sites More sharing options...
yo mama Posted June 13, 2007 Share Posted June 13, 2007 Question: if you've been gifting cash to the GTMA, there shouldn't be any appreciation subject to capital gains tax. So what kind of (potential) tax problems are you concerned about if you pay tuition from that account? Quote Link to comment Share on other sites More sharing options...
whoopazz Posted June 13, 2007 Author Share Posted June 13, 2007 Does a 529 count against you for financial aid? No, at least not nearly as much as the GTMA. Because the 529 is considered "my money", not the childs. Quote Link to comment Share on other sites More sharing options...
yo mama Posted June 13, 2007 Share Posted June 13, 2007 (edited) Does a 529 count against you for financial aid? It can, but it depends on the school's formula for determining financial need. Even when it does, it counts towards the parents' assets; not the students. Read article about it, here. Edited June 13, 2007 by yo mama Quote Link to comment Share on other sites More sharing options...
whoopazz Posted June 13, 2007 Author Share Posted June 13, 2007 Question: if you've been gifting cash to the GTMA, there shouldn't be any appreciation subject to capital gains tax. So what kind of (potential) tax problems are you concerned about if you pay tuition from that account? I fear that I will be subject to capital gains taxes on these accounts, but I'm not sure. I have earned about 4K on these accounts over the last 10 years. Quote Link to comment Share on other sites More sharing options...
yo mama Posted June 13, 2007 Share Posted June 13, 2007 I fear that I will be subject to capital gains taxes on these accounts, but I'm not sure. I have earned about 4K on these accounts over the last 10 years. Okay. The question then becomes: (1) did the accounts earn income, which was subject to taxation when earned (like interest or dividends); or (2) do the accounts contain assets that went up in value, which you now plan to sell (which would trigger capital gains)? Quote Link to comment Share on other sites More sharing options...
whoopazz Posted June 13, 2007 Author Share Posted June 13, 2007 Okay. The question then becomes: (1) did the accounts earn income, which was subject to taxation when earned (like interest or dividends); or (2) do the accounts contain assets that went up in value, which you now plan to sell (which would trigger capital gains)? 2, I think. Please forgive me. I'm good at saving, but a total fektard about taxes. I have not paid taxes on the gains of these accounts. My fear is that when I cash it in for tuition then I will get hammered. So I'm wondering if I can roll it into the 529 for tax protection. By the way, I'm talking about around 25K, so there may be limits on 529 deposits that prevent this. I am scheduled to talk to my financial advisor tomorrow, but figured I might get some honest answers here at the Huddle first... Thanks for your help. Quote Link to comment Share on other sites More sharing options...
yo mama Posted June 13, 2007 Share Posted June 13, 2007 (edited) 2, I think. Please forgive me. I'm good at saving, but a total fektard about taxes. I have not paid taxes on the gains of these accounts. My fear is that when I cash it in for tuition then I will get hammered. So I'm wondering if I can roll it into the 529 for tax protection. By the way, I'm talking about around 25K, so there may be limits on 529 deposits that prevent this. I am scheduled to talk to my financial advisor tomorrow, but figured I might get some honest answers here at the Huddle first... Thanks for your help. You won't be prohibited from dumping 25K into a 529 plan. A new(ish) rule says you can make 5 times the normal "annual exclusion" gifts to a 529 plan. So unless you're putiting more than 60k into the 529 plan in any one year, you'll have no problems in that regard. Just out of curiosity, what are the assets in the GTMA accounts: cash/money market account, stocks/bonds, mutual funds, etc? FWIW, I think you likely do have a tax issue regardless. It's just a matter of figuring out what flavor of tax issue you're dealing with (i.e., capital gains tax or ordinary income tax), whose problem it really is (i.e., your's, or your daughter's), and the timing of the tax consequences (i.e., do they spring up when you liquidate the GTMA account, or were you supposed to be paying tax for the last 10 years and just didn't know it). Edited June 13, 2007 by yo mama Quote Link to comment Share on other sites More sharing options...
boat_hacked Posted June 14, 2007 Share Posted June 14, 2007 FWIW -529 Changes Quote Link to comment Share on other sites More sharing options...
yo mama Posted June 14, 2007 Share Posted June 14, 2007 FWIW -529 Changes Yup. The kiddie tax is part of the reason I suggested the potential tax liability could actually be whoopazz' kid's problem. Quote Link to comment Share on other sites More sharing options...
whoopazz Posted June 14, 2007 Author Share Posted June 14, 2007 (edited) Talked to my advisor yesterday. He said I will need to pay the capital gains tax on it when I withdraw, but at my daughters tax bracket (5%). He suggested I not roll it over into the 529 because: rolled over money is still subject to the same rules as with the UGMA fund, and I'm better off just paying off the whole first year of school with it and get it off her assets. Edited June 14, 2007 by whoopazz Quote Link to comment Share on other sites More sharing options...
yo mama Posted June 14, 2007 Share Posted June 14, 2007 Talked to my advisor yesterday. He said I will need to pay the capital gains tax on it when I withdraw, but at my daughters tax bracket (5%). He suggested I not roll it over into the 529 because: rolled over money is still subject to the same rules as with the UGMA fund, and I'm better off just paying off the whole first year of school with it and get it off her assets. Careful, there. I'll bet dollars to donuts that your daughter is the one that needs to file the tax return and pay the tax: not you. Quote Link to comment Share on other sites More sharing options...
whoopazz Posted June 14, 2007 Author Share Posted June 14, 2007 Careful, there. I'll bet dollars to donuts that your daughter is the one that needs to file the tax return and pay the tax: not you. Your right. Thanks for your help. Quote Link to comment Share on other sites More sharing options...
yo mama Posted June 14, 2007 Share Posted June 14, 2007 Your right. Thanks for your help. You're welcome. Quote Link to comment Share on other sites More sharing options...
Recommended Posts
Join the conversation
You can post now and register later. If you have an account, sign in now to post with your account.