How to Convert Stock to a 529 Account
Original post by Wanda Thibodeaux of Demand Media
A 529 plan is an investment option that allows people to save money for college. These are attractive plans to many people because you can contribute as much or as little as you like and even switch beneficiaries. For people who have stocks, it's possible to convert the stocks to a 529 account. However, because of regulations in place at the time of publication, you must do this in an indirect way.
The two major types of 529s are prepaid tuition and savings plans. With prepaid tuition, you pay to lock in the current tuition rates and thereby avoid inflation. With a savings plan, your contributions are invested for you in different types of mutual funds you select, so this is the type of 529 plan most commonly associated with stocks. Before you convert your stocks, you'll need to decide which type of 529 is best for you. Savings plans are a little riskier, but they can have better rates of return. Prepaid plans generally are safer.
The Cash Only Rule
At the time of publication, regulations regarding 529 plans did not permit anyone to transfer stock directly into 529 plans, as stated by Barbara Whelehan of Bankrate.com. You can only make cash contributions. With a savings plan, you can then tell your investment agency how you want your contribution invested. This means that, in order to convert stock into a 529 plan, you must convert your stock to cash.
How to Cash In Your Stocks
The simplest way to cash in your stocks so you can use the cash in a 529 plan is to go online to the website of your brokerage firm. Log in to your account and click the links or buttons that allow you buy or sell your stocks -- usually these are in sections labeled "Manage Your Account" or something similar. In some instances, if you've linked your brokerage account to your bank or other escrow account, the brokerage firm can deduct the fees associated with the sale of the stock automatically, and the proceeds from the sale can go directly into the bank or escrow account. Alternately, call the broker with whom you normally work and indicate the stocks you want to liquidate. He then will process the sale for you. In either case, the brokerage firm or individual broker should provide verification to you that the transaction is complete. Some brokers still use traditional paper forms you fill out if you want to sell your stock.
Putting Liquidated Stock Into the 529
Each state has its own 529 plan options and each has an administrator that oversees the plans. To set up a plan, you must contact the administrator and fill out some basic paperwork. The paperwork includes information such as your name and contact information, the beneficiaries and the amount of funds you are putting into the plan. Many administrators have their enrollment forms online, so setting up a 529 doesn't even require leaving your home. You also can find a brokerage firm or financial adviser who can help you through the paperwork and who is willing to oversee the plan for you. Once you know what administrator or adviser you'll use, provide them with the funds you gained from the stock. If you opt for a savings plan, you'll need to tell the administrator or adviser which stock options you want to use with the plan.
- The Pros and Cons of College Savings Plans; Barbara Whelehan; October 2006
- The Wall Street Journal; How to Start a 529 College Savings Plan; 2011
- U.S. Securities and Exchange Commission; An Introduction to 529 Plans; August 2007
About the Author
Wanda Thibodeaux is a freelance writer and editor based in Eagan, Minn. She has been published in both print and Web publications and has written on everything from fly fishing to parenting. She currently works through her business website, Takingdictation.com, which functions globally and welcomes new clients.
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