BreadWithSpam[at]fractious.net wrote:

- quote -

The link is to an article from 11/03, I agree that the law has probably
been clarified a bit. I'll look again over the weekend, I swear we
discussed this here and came to an agreed conclusion, hopefully with
links to reliable data sources.

The wording of any regs on 529 leave loopholes. I can create a 529 for
my child and child's cousin. 12K limit (ignore the five year rule
please). Then, soon after, change the beneficiary to my child from the
cousin. How is any of that tracked to adhere to the spirit of the law as
well as the letter?
JOE

joetaxpayer <joetaxpayer[at]nospam.com> writes:

- quote -

That's why I'm asking. As long as the beneficiary is changed
to someone within the family, there is no federal *income*
tax and no forced distribution (or 10% penalty). But according
to the following article (dated 11/03), but there are GST
consequences:

http://advisor.morningstar.com/artic...asp?docId=3311

There are no tax consequences to changing the designated beneficiary
as long as 1) the new beneficiary is a member of the family of the
old beneficiary and 2) for GST tax purposes, the new beneficiary is
assigned to the same generation as (or a higher generation than) the
old beneficiary

It is important to note that under the 2001 tax act, a first cousin
is a member of the family of a designated beneficiary. Now, a donor
having two grandchildren with different parents may change the
beneficiary from one grandchild to the other without adverse tax
consequences.4 However, this provision is scheduled to sunset in
2011.

Regardless of family relationship, the change of beneficiary is
treated as a gift if the new beneficiary is one or more generations
below the old beneficiary, and is also treated as a GST transfer if
the beneficiary is two generations or more below the old
beneficiary.6 The deemed gift would be to a 529SA for the new
beneficiary and thus would qualify for the gift tax annual
exclusion. Further, the proposed regulations provide that the five
year averaging rule may be applied to this deemed transfer.7

There are endnotes with references to specific parts of
the legislation (and proposed? legislation), but I was
hoping someone here already had dealt with this and had
a clear answer.

It appears that there are absolutely no tax consequences
if you transfer from, say, your kid or grandkid to yourself
and use the money for continuing education. Or from your
grandkid to your other grandkid, or your kid to one of your
other (or sibling's) kids. Probably the most likely three
scenarios. But the notion that there are potential issues
if you transfer from your kid to your grandkid or such is
a little disconcerting.

There's obviously been some further tax law passed since
2003, though, and it's possible that this has been
clarified better.


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BreadWithSpam[at]fractious.net wrote:
- quote -

Last I knew, change of beneficiary did not, but change of owner had a
potential tax/gift impact. Too bad, but since the beneficiary can be
changed, that's an odd status of 'gift', it's not quite completed now,
is it?
JOE

kastnna <kastnna[at]auburnalum.org> writes:

[529 - change of beneficiary]
- quote -

Question regarding this - some older publications indicate
that there was a potential GST and/or gift tax consequence
to a change of beneficiary where it also changed generations
(ie. change from your son to your grandson).

Current doc I found in IRS pubs (p970) says nothing
about this. Has this reg changed or have I missed something?


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P.Schuman wrote:
- quote -

Depending on the age of the children the kiddie tax may factor into this
decision. If the money keeps landing in an UGMA/UTMA account and these
are young children, who you expect will attend college, you may set up
some kiddie tax problems that last all the way through school.

How old are they, how much money would be accumulated?

-Tad

On Jan 31, 2:14*pm, Lon <alonzotan...[at]yahoo.com> wrote:
- quote -

Also, if a child does not go to college (or doesn't spend all of the
funds at college) you can change beneficiaries of the account to
another qualifying family member.

Lon wrote:
- quote -

*only the growth is taxed. That growth is subject to 10% penalty unless
you qualify for an exception to the penalty. The exceptions relate to
withdrawals made on account of the beneficiary's death, disability,
receipt of a scholarship, or attendance at a Unites States military
academy. A limited exception also exists for families claiming a Hope
credit or Lifetime Learning credit since those credits act to reduce
your qualified higher education expenses.

JOE

On Jan 30, 2:16 pm, "P.Schuman" <pschuman_no_spam...[at]interserv.comwrote:
- quote -

I am a grandparent that has just recently set up a 529 College Plan
for three grandchildren ages, 2, 4, 6. We did so not for any Estate
Tax considerations, but to aid in the cost of each child's education.
My wife and I control the funds which must be used for tuition, books,
fees and other costs attributable strictly for college. The money in
the accounts accumulates on a tax free basis and is not taxable when
withdrawn if used for the preceding reasons. The 529 precludes misuse
of the funds by either the parents or the grandchildren. If for some
reason they do not go to college, the funds can be withdrawn, given to
the children, and is taxable to them. We deposited into three
separated accounts with Vanguard, lump sums, and will not be making
any further contributions.

P.Schuman wrote:

- quote -

Missing data - how old are the grandkids? Is there any issue about
someone else controlling the money? i.e. a 529 cannot be spent by the
beneficiary, it is controlled by the account owner. Easy way to shift
things around. And the 529 has a tax advantage the outright gift does
not. If the estates are really huge, grandparents can gift ahead up to 5
years with no gift tax issue.
JOE
www.blog.joetaxpayer.com

thinking about our grandparents yearly "gift" of $12k....to lessen their
estate holdings...

Comments on whether it's better to put some into a 529 acct for each kid
that was established by the grandparents.... or just hand over the $12k ?

They previously had put a portion each year into the respective kid's 529
acct,
and then the rest was given as birthday + xmas presents....

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