529 plan rules and usage

[jIM_Ohio]

Questions on 529 plans.

Wife is pregnant with twins (kids #1 and #2). Due in June. My understanding is money can go into 529's pre tax (like 401k) and also come out pre-tax (qualified withdraws).

What are limits to 529 contributions? Is limit per child, per family, per contributor (for example if max is 5k, could I put in 5k for kid #1, then have grandma also put in 5k and have god parents put in 5k for kid #1)?

Here's my thought-

My SIL has two kids and will be watching the twins for day care. Most of the money paid for day care will be "cash", meaning no tax deductions either for child care.

I was thinking I could pay some of this as a 529 contribution for her kid(s). Then depending on life (not sure if nieces will go to college), the 529 could be transferred to their cousins (my kids) and I would pay SIL cash from another account when this happened.

Thoughts?

[jIM_Ohio]

I have read that maximum contribution is $320,000 per beneficiary (lifetime).

Beneficiaries can be changed to another family member. This can be a cousin of primary beneficiary... and the contributions are not pre-tax, as stated above.

[Like2Plan]

Jim,
You answered yor own questions!

I had a question for you, but not related to 529's. Does you employee offer a dependant care flexible spending account? The contributions are pre-tax. That might be the ticket for you for the childcare expenses.

[Thrif-t]

Jim,
You answered yor own questions!

I had a question for you, but not related to 529's. Does you employee offer a dependant care flexible spending account? The contributions are pre-tax. That might be the ticket for you for the childcare expenses.

Ya but if he's paying his sitter under the table he couldn't use it. You'd need a Federal Id# for the sitter to claim your reimbusements.

[Like2Plan]

Ya but if he's paying his sitter under the table he couldn't use it. You'd need a Federal Id# for the sitter to claim your reimbusements.

It might be worthwhile for Jim to check out (if it is available to him). The tax advantage to using a flexible spending account could be significant (all dependant on Jim's tax bracket). It saves on federal, SS tax and often state and local taxes as well. There is no income test to making contributions. Consider someone in the 25% bracket. They save 25% federal taxes+ 7.65 FICA taxes + possible X% for state taxes on the contibution portion.

On the other side, his sister may be entitled to certain write offs for having a child care business....

[Ronin]

I don't think you can have the 529 money come out pre-tax, it's an after tax deposit.