|
Posted by Herb Smith on November 10, 2006, 5:10 pm
Please log in for more thread options
Dave wrote:
> OK - I seem to have the basics down, but I'm wondering if
> federal law lets me play with this as much as I want.
>
> I open a 529; I am now the Participant.
"Participant"??
> I declare my son the beneficiary.
>
> I put in some of my own money.
> My mother puts in money for her darling grandson.. I drain
> the kids Cloverdell account, as 529s seem better now.
The Coverdell account can also be used to secondary school
expenses, as well as college, so might be worth keeping if
the beneficiary is still in elementary, middle or high
school.
I take
> money out of the kids trust fund and put it in the 529.
> This is a proper fuduciary move, as the taxes will be far
> less, and the kid will net more money in the long run.
I'm not sure that taking money from the kid's trust account
is such a good fiduciary move, as you would be taking HIS
money and putting it in YOUR account. Some might call that
embezzlement.
> Now - with money from all of these places, the kid finishes
> college, and I want to give him the left over. I would
> rather pay income taxes at his rate though, not mine. So,
> is the proper thing to do is find a new beneficiary, then
> declare my son the new Participant, then he can drain the
> account?
If you distribute the funds to your son (after he has
completed college), the disqualified distribution (earnings)
will be taxable to HIM at his tax rate. In addition, they
would be subject to a 10% penalty if not used for eligible
higher education expenses. Alternately, if there is another
FAMILY member with eligible expenses, you can rollover the
funds to a 529 with him or her as beneficiary (within 60
days of withdrawal).
> Or another strange issue here. After getting money from all
> these sources, I, as the Participant, close the account. I
> have to pay taxes and penalties on the earnings, but have I
> just leaglly moved money from my kid's trust into my name?
The taxes and penalties are charged to the named
beneficiary, not the custodian.
> Or - if my mother was wealthy enough that she wanted to gift
> me more than the $12k limit, can she just put it into the
> 529 plan that I am the Participant of, and I can then pull
> it out? This seems wrong, but I don't see a rule covering
> this loophole.
Money going into a 529 plan is assumed to be for the higher
education expenses of the beneficiary. If not used for that
purpose, the earnings are taxable to the beneficiary at his
or her tax rate AND are subject to a 10% penalty. The
contributions are still subject to the annual gift tax
exclusion in most cases. What loophole?
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
| 
Yahoo! 
Google 
Windows Live 
del.icio.us 
digg 
Netscape 
XML Sitemap