I recently opened a 529 account in Company A and I converted a Coverdell account from Company B, with a sizable amount, into Company A's 529 account. There is no change on the beneficiary; the beneficiary on the original Coverdell account is the same beneficiary for the 529 account. Let's say I converted/rolled over about $50K, will that money be considered a part of the gift tax reporting limit?
Coverdell/529 accounts have nothing to do with the gif tax requirement. Besides, based on the contribution limits to a Coverdell/529 account, even if it did count for gift tax reporting (it does not, never has, and never will) you're not going to come anywhere even close to the $15K maximum you can gift a person without having to report it on IRS Form 709 - Gift Tax Return.
As for the transfer/conversion you did from Company B, you *will* receive a 1099-Q for that withdrawal. In TurboTax you will enter the 1099-Q *exactly* as printed. Then on follow up screens you just indicate that you "rolled it" to another Coverdell/529 account, and that will negate any taxes and/or penalties.
Thanks Carl just to get this straight.
1) So anything over $15K gift by a parent (over $30K gift by both parents) to a child's 529 Plan, the parent (or couple) will have to report it to IRS Form 709. Anything less does not trigger the Form 709.
2) For the conversion from Coverdell to 529 plan, the $50K conversion will not count towards the yearly gift tax reporting limit - correct?
Just wanted to make sure, I'm trying to play catch up here, want to max out for the year because I have been saving in Coverdell ($2K annual limit) instead of the 529 plan for my children.
Aloha and thanks.
Direct from the IRS at https://www.irs.gov/newsroom/529-plans-questions-and-answers
Q. Are there contribution limits?
A. Yes. Contributions can not exceed the amount necessary to provide for the qualified education expenses of the beneficiary. If you contribute to a 529 plan, however, be aware that there may be gift tax consequences if your contributions, plus any other gifts, to a particular beneficiary exceed $14,000 during the year. For information on a special rule that applies to contributions to 529 plans, see the instructions for Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.
Do note that for 2018 the requirement for IRS Form 709 Gift Tax Return has been raised to $15,000
For the conversion from Coverdell to 529 plan, the $50K conversion will not count towards the yearly gift tax reporting limit - correct?
Correct. It's a conversion, not a contribution. However, if you withdraw from the Coverdell and then contribute that money to a 529 for the same beneficiary, the beneficiary recipient may receive a 1099-Q for the withdrawal. If you do, then they are required to report it. But not to worry, as the program will ask you what you did with the funds, and you simply indicate they were deposited into a 529 plan and that takes care of it.
Take SPEICAL NOTE, that the beneficiary recipient will receive the 1099-Q with their SSN on it, and they will be required to report it on their tax return. You need to work the conversion and/or transfer with the administrator *AND* the institution managing the fund to ENSURE things are done correctly and you need to "KNOW FOR A FACT" if your actions will result in a 1099-Q and whose SSN will be on that 1099-Q. Generally, if you do the equivalent of a "trustee to trustee" transfer, then no 1099-Q is issued and there's no tax reporting requirement.