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Subject Author Date
Re: 529 Plan Transfer of Ownership Bill Brown 07-01-2007
Posted by Bill Brown on July 1, 2007, 8:33 pm
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> [talks about changing the "Account owner" of a 529 plan]

>> My understanding is there are no tax consequences unless it
>> is an "abusive" transfer. Can anyone suggest the
>> circumstances under which there would be tax consequences?

> Well, if the account is worth more than $12,000, I believe
> there will be gift tax consequences (a gift tax return would
> have to be filed even if (as would be likely) no gift tax
> due).

So there is potentially two gift taxes, one when the
custodian transfers money to the 529 plan and a second when
the custodian transfer custodial rights to another person?

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Posted by jay1000 on July 4, 2007, 10:57 pm
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>> [talks about changing the "Account owner" of a 529 plan]

>>> My understanding is there are no tax consequences unless it
>>> is an "abusive" transfer. Can anyone suggest the
>>> circumstances under which there would be tax consequences?

>> Well, if the account is worth more than $12,000, I believe
>> there will be gift tax consequences (a gift tax return would
>> have to be filed even if (as would be likely) no gift tax
>> due).

> So there is potentially two gift taxes, one when the
> custodian transfers money to the 529 plan and a second when
> the custodian transfer custodial rights to another person?

The 529 is a peculiar animal. It can be funded by your
annual gifting to it's beneficiary. So there is no gift
tax. The amount of the gift is no longer part of your
esatate. But you are still the owner of the 529. You can
change the beneficiary to some other relative with no tax
consequence. Apparantly you can also change the ownership
with a "maybe" tax consequences. My question is why a
"maybe"? If I could understand what would trigger a tax, I
might be able to avoid it.

<< ------------------------------------------------------- >>
<< 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. >>
<< ------------------------------------------------------- >>

Posted by joetaxpayer on July 5, 2007, 11:51 pm
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jay1000 wrote:

> The 529 is a peculiar animal. It can be funded by your
> annual gifting to its beneficiary. So there is no gift
> tax. The amount of the gift is no longer part of your
> esatate.

Exception - the gift-ahead amount of a 5-year gift is pulled
back into your estate if you die before the 5 years have
passed. e.g. if you gift $60K to a 529, and die tomorrow,
$48K is still part of your estate.

> But you are still the owner of the 529. You can
> change the beneficiary to some other relative with no tax
> consequence.

If the beneficiary is more than a generation off (as a shift
to a grandchild), there may be 'generation-skipping' issues,
and consequent taxes.

> Apparantly you can also change the ownership
> with a "maybe" tax consequences. My question is why a
> "maybe"? If I could understand what would trigger a tax, I
> might be able to avoid it.

I believe the 'maybe' stems from potential abuses. As you
stated in your initial question, the IRS wants to avoid
'abusive' transfers. The use (misuse) of these accounts can
potentially move quite a bit of money around. I'm also
thinking about the aspect of "poor man's trust" that a 529
can serve. It's money removed from one's estate, has more
flexibility than a revocable trust, and needs no trust
documents (with all the costs of same). The downside of this
use is the investments within the 529 are limited, and carry
higher fees, and the 10% non-school withdrawal penalty.

This doesn't answer the question. I look forward to a clear
answer on the exact details. Remember, there's two potential
transfers, change of beneficiary and change of owner. A
clear answer on when there are gift tax consequences would
be great.

JOE

<< ------------------------------------------------------- >>
<< 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. >>
<< ------------------------------------------------------- >>

Posted by Rich Carreiro on July 9, 2007, 12:30 am
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jay1000 wrote:

> Apparantly you can also change the ownership
> with a "maybe" tax consequences. My question is why a
> "maybe"? If I could understand what would trigger a tax, I
> might be able to avoid it.

According to the official offering document for the "U.
Plan" (which is Massachusetts's Section 529 plan), the owner
of a 529 plan cannot be changed (except that a designated
successor owner can be named for when the original owner
dies). According to the document, if you want to change the
owner of the plan, the existing owner would have to close
out the plan (and therefore pay income tax and the penalty
tax on the earnings), give the money to the desired new
owner (and so have to file a gift tax return) and the new
owner would open the account with the money.

--
Rich Carreiro rlcarr@animato.arlington.ma.us

<< ------------------------------------------------------- >>
<< 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. >>
<< ------------------------------------------------------- >>

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