How do you track 529 Investment exchanges without changing the cost basis?

I manually track several 529 Education plans as investment accounts. The 529 investment site does not provide for automatic downloads so I have to track the investments manually. When I go to the investment website, It allows me to make periodic investment changes which they treat as exchanges so as not to change the cost basis.
When I manually track these investments in Quicken, Quicken does not have an "exchange" function in the drop down menu which causes me to have to treat the transaction as either a buy or sell. This makes the cost basis incorrect since any realized gain is now used as the cost basis of the new buy.

Does anyone have a solution on how to avoid this? Does Quicken have an investment exchange function or 529 plan tracking function that I am simply missing?

Answers

  • John_in_NC
    John_in_NC SuperUser, Mac Beta Beta
    I believe what you want is the Add and Remove Shares transaction type. 

    You can remove your old holdings, and then add the new. In the Add Shares transaction, you have the ability to add the cost basis for the acquisition of said security.
  • NotACPA
    NotACPA SuperUser ✭✭✭✭✭
    What you're giving up is the ability to track investment performance in this 529 account.  You initial contribution will always remain ... but you should use BUY and SELL transactions so that you can track how the investments in this account are performing.
    Q user since DOS version 5
    Now running Quicken Windows Subscription, Home & Business
    Retired "Certified Information Systems Auditor" & Bank Audit VP
  • jacobs
    jacobs SuperUser, Mac Beta Beta
    @Michael 34 I don't think you need to be be concerned about tracking the cost basis of your 529 investments. It's a tax-free account, and all the interest/dividends/capital gains earned by your investments also accrue tax free -- unless you take non-qualified distributions. In a traditional investment, when you reinvest a dividend, you're increasing your cost basis, and that's important to track for tax purposes. But with a 529 investment, all you need to track is how much (after-tax) money you put into the plan, which you presumably already have documented in Quicken.

    If the funds in the 529 plan get fully used for the beneficiary's education, there's nothing taxable. If you have money left after all education is complete (potentially including grad school, and now in many cases, some payment of student loans) and you wish to withdraw the remaining funds, you won't need to know your cost basis. The withdrawal is subject to income tax and a 10% penalty, but only on the portion which was earned income, not your original contributions to the 529 plan. So how do you know what portion of the funds are your contribution and what portion are earned income? The plan administrator tells you. Each year, you get a Form 1099-Q from the plan administrator reporting the total distribution taken from the account during the year, the portion of the distribution that came from earnings in the account, and the portion of the distribution that represents the original contribution to the account. (Unlike a Roth IRA, you aren't allowed to take any principal-only distributions; each withdrawal over the life of the plan is made up of contributions and earnings. So if you withdraw what's left in the plan, you pay tax and a 10 % penalty on the earnings-only portion of that non-qualified withdrawal.)

    I'm not a 529 expert but think I said that all correctly; in any case, the point was that getting the cost basis in Quicken isn't important for a 529 plan as it would be for other types of investments, because cost basis isn't a factor in determining tax on a non-qualified withdrawal. For that reason, as @NotACPA said, you could use Sell and Buy transactions in Quicken to allow you to track the performance of the different investments over time. 

    Quicken Mac Subscription • Quicken user since 1993
  • Michael 34
    Michael 34 Member ✭✭
    Thank you for your responses. All very good ideas!
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