#44973 - 06/03/09 12:23 AM
Converting 529 to Coverdell
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ColoradoPeach
Registered: 06/03/09
Posts: 2
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Hi all -
I spent a lot of time on this site 7 years ago when I first set-up a 529 account for my baby boy. He is now 7 yrs old and has a 529 College America account in his name. My son (in 1st grader) was recently diagnosed with two learning disabilities--reading & writing disorder (Dyslexia) & ADD. To figure out how he learns best, my husband & I decided to have him tested. This comprehensive assessment and strategic learning plan will cost us $3000. It is also my understanding that my son would benefit from tutoring on a weekly basis.
It just accured to me that maybe we could use some of the money we have socked away in his 529 acct to help pay for these early education expenses. But my American Funds representative said that his 529 funds can only be used for "higher education" expenses.
Here are my questions:
Is my Amer. Funds rep. right? If so, does the Coverdell accounts allow for these type of expenses? If it does, can I convert my son's 529 into a Coverdell? How do I go about that? Is there anything I should be aware of before I take this step?
I greatly appreciate your input on this matter. I am trying to gather together my funds right now to pay for the assessment. Thanks!
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#44974 - 06/03/09 01:33 AM
Re: Converting 529 to Coverdell
[Re: ColoradoPeach]
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ColoradoPeach
Registered: 06/03/09
Posts: 2
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Hi all - This is ColoradoPeach writing again. I poked around on the board and it looks like I can't convert a 529 to a Coverdell. Bummer.
I thought perhaps you'all might be able to offer me help if I told you my goal and what I have to work with.
My goal is to use some of our savings (without penalties) to pay for the educational expenses related to my special needs child. My son was put on an IEP just last month. Unfortunately, we are cash poor right now. That's why we would like to tap into our savings to pay for his assessment cost and literacy tutoring.
My husband and I both have Roth IRAs. Do we have any options for penalty-free withdrawals to help my son?
I welcome any suggestions. Thanks in advance.
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#44976 - 06/03/09 12:35 PM
Re: Converting 529 to Coverdell
[Re: ColoradoPeach]
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Drew
Registered: 01/09/00
Posts: 2864
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If his literacy training is part of his IEP the school district should pay for it?
Has your 529 gone up in value in todays tough market--if its flat or down then there should be no taxes or penalities to raid it? I'm not saying to raid it makes sense--but the option may be low or no cost.
_________________________
Drew
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#44980 - 06/03/09 04:01 PM
Re: Converting 529 to Coverdell
[Re: Drew]
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itstoomuch
Registered: 01/01/06
Posts: 876
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S you have discovered, the highway of the 529 is a oneway, with limited exits. Investing for higher education, is Investing, (chance of losing) and should be taken after careful review of UGMA's, Coverdell, and regular/joint accounts. Access to cash when you need it, is more important than investing.
OP: If the 529 was set as an UGMA you would have a much easier exit strategy than an 529 with you or relative (which you should never, ever do) as custodian.
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#44981 - 06/04/09 01:30 AM
Re: Converting 529 to Coverdell
[Re: itstoomuch]
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itstoomuch
Registered: 01/01/06
Posts: 876
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OP, Clarification Please,
. He is now 7 yrs old and has a 529 College America account in his name.
Who is the owner? I understand that one of parents is the custodian, but is the child the owner or one of the parents?
I didn't know that colorado grow peaches.
Edited by itstoomuch (06/04/09 01:32 AM)
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#44982 - 06/04/09 07:07 AM
Re: Converting 529 to Coverdell
[Re: itstoomuch]
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anonymous
Registered: 03/29/05
Posts: 2092
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Colorado Peach,
Your American Funds representative is wrong. 529 plans can be used for ANYTHING. The question is whether there would be taxes and penalties. Taxes and penalties would only be on the gain. If there is no gain, you can close the account and take all of the money and pay no taxes and no penalties.
This is a prime example of why I don't recommend 529 plans for families with just one child.
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#45011 - 06/11/09 08:14 AM
Re: Converting 529 to Coverdell
[Re: anonymous]
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shallcu
Registered: 06/11/09
Posts: 1
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The Roth IRA question was not addressed.
Your Roth IRA is an available resource. The tax rules work the following:
1. Your contributions come out without any tax consequence 1st. So if your Roth IRA is worth $5,000 and you put in $3,000, when you take our $3,000, to pay for some of your expenses, then you get that tax-free because contributions come out first.
2. If you exceed your contribution, then any money coming out that represents profit will be taxed at your ordinary tax rate.
3. 10% early withdrawal penalty is evoked if you are under 59 1/2 at time of distribution. The typical exception that you would probably look at is for education. Unfortunately, it is for secondary schooling, not primary and accompanying expenses.
If you decide to take money out, remember that it is not easily replaced due to possible income limits and general contribution limits.
IRS Pub 590 at http://www.irs.gov is a good resource for you to understand penalties.
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#45012 - 06/12/09 10:20 PM
Re: Converting 529 to Coverdell
[Re: shallcu]
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itstoomuch
Registered: 01/01/06
Posts: 876
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disability: sect 72(m)(7).
May be worthwhile to write to the Secretary of Education, possibly thru your senator or congressman.
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