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  • 529s from grandparents

    Question,

    Apparently my parents had 529 set up for as many years ago which I was not aware of. Oops! They want to now transfer it to me since I have young children.

    Anyone have any experience with this and what the steps are to assume ownership?

    Also anyone know if there's any tax implications or other negative issues to this as a high earner?

    Thanks in advance

  • #2
    Want to go back to school instead? Maybe study physics or something - I'm planning to do that in retirement.

    (can't help with the details of your question, but I have heard it's possible to pass along).

    Comment


    • #3
      Nice problem to have.  If you have same generation siblings, it wouldn't be an issue. -- IIRC, Skipping generations triggers taxes -- but can be 'gifted' toward the annual exclusion.

      Check with your accountant on how to document that and reassigning the beneficiary on it.

      If you got scholarships, you can document that and pull out the funds for yourself, but have to pay taxes on the earnings (but no penalties).

       

      Comment


      • #4
        Sorry don't think I was clear on my original post.
        The plan would be to pass it along to my children when they go to college. I have no interest in school, I can barely study 5mins for my recertification exam. However I would technically be the owner and I would hold it under their name.

        Question would be if there are any tax issues with this plan?

        Thanks

        Comment


        • #5




          The plan would be to pass it along to my children when they go to college. I have no interest in school, I can barely study 5mins for my recertification exam. However I would technically be the owner and I would hold it under their name.

          Question would be if there are any tax issues with this plan?
          Click to expand...


          There should be no tax consequences of changing the beneficiary to a member of your family. However, when changing the beneficiary to another generation, you are technically making a gift. As far as I can tell, the IRS has not clarified whether the gift would be from your parents or from you. If the account is < $14k per beneficiary, it really doesn't matter. If the amount is > $14k per beneficiary, you would need to file a gift tax return and can even make the 5-year election to reduce or remove any gift tax consequences.

          Re-reading your post, however, it is not clear who the current beneficiaries are. Was the 529 set up for you or the grandchildren?
          Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

          Comment


          • #6




            IIRC, Skipping generations triggers taxes — but can be ‘gifted’ toward the annual exclusion.
            Click to expand...





            However, when changing the beneficiary to another generation, you are technically making a gift.
            Click to expand...


            (I agree with you Johanna) - but I find this to be a little insane. Is this really a 'gift' under IRS rules? I know the tax man has to be paid, but this one rubs me the wrong way.

            Technically, parents saving for tuition for their children isn't a gift, why is this? There are several cultures here in America where grandparents directly contribute to raising the grandchildren. Sometimes it's a house, sometimes it's giving the family a place to live, sometimes it's tbills, sometimes its ice cream cones (my personal favorite).

            I guess at least you can 'gift' 14k/year for a while until it's all 'gifted'.

            Comment


            • #7


              (I agree with you Johanna) – but I find this to be a little insane. Is this really a ‘gift’ under IRS rules? I know the tax man has to be paid, but this one rubs me the wrong way. Technically, parents saving for tuition for their children isn’t a gift, why is this? There are several cultures here in America where grandparents directly contribute to raising the grandchildren. Sometimes it’s a house, sometimes it’s giving the family a place to live, sometimes it’s tbills, sometimes its ice cream cones (my personal favorite). I guess at least you can ‘gift’ 14k/year for a while until it’s all ‘gifted’.
              Click to expand...


              I agree that there is a blurry line on "gifting" versus paying for the support of a family member, even with 529s. otoh, grandparents have used 529s as an estate reduction device by frontloading 5 years of contributions for multiple grandchildren, which can easily be in the hundreds of thousands and reduce a taxable estate (at the minimum 40% rate) accordingly.

              If it were the same generation, there wouldn't even be a question, which is what led me to add that follow-up.
              Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

              Comment


              • #8
                My understanding is that op was beneficiary of 529 from his parents and those funds have gone unused.

                Now, op wants to rename the beneficiary to op children. This is a move across generation and will incur a tax unless gifted is my understanding.

                If initially setup by grandparents to grandchildren as beneficiary, that would be fine....but still limited to 14k per year via that route is wanted to tax-free transfer and earnings within the 529 is my understanding for each grandchild.

                The issue from the op is that he is the current beneficiary and wants to move it to his kids.

                Comment


                • #9









                  IIRC, Skipping generations triggers taxes — but can be ‘gifted’ toward the annual exclusion.
                  Click to expand…







                  However, when changing the beneficiary to another generation, you are technically making a gift.
                  Click to expand…


                  (I agree with you Johanna) – but I find this to be a little insane. Is this really a ‘gift’ under IRS rules? I know the tax man has to be paid, but this one rubs me the wrong way.

                  Technically, parents saving for tuition for their children isn’t a gift, why is this? There are several cultures here in America where grandparents directly contribute to raising the grandchildren. Sometimes it’s a house, sometimes it’s giving the family a place to live, sometimes it’s tbills, sometimes its ice cream cones (my personal favorite).

                  I guess at least you can ‘gift’ 14k/year for a while until it’s all ‘gifted’.
                  Click to expand...


                  Saving money for something is not a gift.  Transferring it to that person or for that person's benefit (e.g., into a 529), is.

                  Gift & estate taxes rub a lot of people the wrong way

                  Comment

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