Gift Tax for 529 Contribution if Self-Beneficiary Account?

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Gift Tax for 529 Contribution if Self-Beneficiary Account?

Postby smith1947 » Wed Jan 18, 2012 6:28 pm

Hi, I have been looking in vain for some information related to my situation, and haven't been able to find anything directly applicable, so I'm hoping someone out there can point me in the right direction.

I'm a 24 y/o looking to set up a 529 to save for my own graduate school education. Without getting into issues like why I think a 529 is right for me and my chosen asset allocation, I have a fairly straightforward question:

If I fund a 529 in 2012 with more than $13,000, and I am both the account owner and the beneficiary, does this count as a gift (thus potentially subject to a gift tax)?

I know there's no actual tax liability here because I can claim the 529-style exception and gift up to $65,000 in a single year and account for it over a five-year period, so really I'm just wondering if I need to file a IRS Form 709.

Thanks, I appreciate the help!
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Re: Gift Tax for 529 Contribution if Self-Beneficiary Accoun

Postby Archie Sinclair » Wed Jan 18, 2012 9:24 pm

No, gifts have recipients.
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Re: Gift Tax for 529 Contribution if Self-Beneficiary Accoun

Postby Brody » Wed Jan 18, 2012 10:29 pm

smith1947 wrote:Hi, I have been looking in vain for some information related to my situation, and haven't been able to find anything directly applicable, so I'm hoping someone out there can point me in the right direction.

I'm a 24 y/o looking to set up a 529 to save for my own graduate school education. Without getting into issues like why I think a 529 is right for me and my chosen asset allocation, I have a fairly straightforward question:

If I fund a 529 in 2012 with more than $13,000, and I am both the account owner and the beneficiary, does this count as a gift (thus potentially subject to a gift tax)?

I know there's no actual tax liability here because I can claim the 529-style exception and gift up to $65,000 in a single year and account for it over a five-year period, so really I'm just wondering if I need to file a IRS Form 709.

Thanks, I appreciate the help!


You can't gift to yourself. You can put unlimited amounts in with you as the beneficiary (up to plan limits).
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Re: Gift Tax for 529 Contribution if Self-Beneficiary Accoun

Postby smith1947 » Thu Jan 19, 2012 12:31 pm

Thanks for the replies, I appreciate the responses. I was thinking the same thing, just couldn't find it confirmed anywhere.

I was particularly confused by the text of IRC 529(c)(2)(A) (http://www.law.cornell.edu/uscode/html/ ... -000-.html) which states, "Any contribution to a qualified tuition program [i.e., a 529 plan] on behalf of any designated beneficiary [shall be treated as a gift]." It seems to state that, no matter what, all contributions to a qualified tuition program are a gift. "Designated beneficiary" is formally defined (529(e)(1)) to mean "the individual designated at the commencement of participation in the qualified tuition program as the beneficiary of amounts paid (or to be paid) to the program ... ." So it seems like I do qualify as the "designated beneficiary." I didn't see a specified exemption if the beneficiary is also the contributor, but I guess such an exemption doesn't need to be made explicit, because, as you both point out, you can't make a gift to yourself? I might just file an IRS Form 709 and explain the situation, or hire someone else to do my taxes for this year...

Anyways, thanks again for the help.
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Re: Gift Tax for 529 Contribution if Self-Beneficiary Accoun

Postby SteelyEyed » Thu Jan 19, 2012 1:08 pm

That makes sense. What if over the years, you contribute $80,000 to this account, and then you change the beneficiary to a child? Have you then exceeded the gift tax exclusion?
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Re: Gift Tax for 529 Contribution if Self-Beneficiary Accoun

Postby smith1947 » Thu Jan 19, 2012 1:22 pm

My understanding is that basically you would only be able to accumulate $65k before changing the beneficiary to a child if you want to avoid any gift taxes (because you're allowed to amortize the gift over 5y - so effectively $13k/yr). If you have more than one kid you could split a balance >$65k into an account for each beneficiary to avoid this issue. If you have $80k accumulated and only one kid, you could gift $65k at birth and then wait 5y and gift the remaining balance up to another $65k (and during the kid's first five years you could continue contributing to the account in your name). Obviously, continue this logic if you still have more than $65k in the account after waiting 5y, and you could make a third gift 10y after the first gift.

Again, that's just my understanding as a layman.
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Re: Gift Tax for 529 Contribution if Self-Beneficiary Accoun

Postby nlof » Fri Dec 28, 2012 9:00 pm

Bump. Same question as OP, just wanted to ascertain that everyone agrees with the responses in the thread...

Is it correct to assume that there is NO gift tax implication to large 529 contributions made to self as both owner and beneficiary? The OP quoted text from IRC 529(c)(2)(A) raised same doubt in my mind despite the fact that I laughed it off initially.
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Re: Gift Tax for 529 Contribution if Self-Beneficiary Accoun

Postby sscritic » Fri Dec 28, 2012 9:21 pm

nlof wrote:Bump. Same question as OP, just wanted to ascertain that everyone agrees with the responses in the thread...

Is it correct to assume that there is NO gift tax implication to large 529 contributions made to self as both owner and beneficiary? The OP quoted text from IRC 529(c)(2)(A) raised same doubt in my mind despite the fact that I laughed it off initially.

Context:
(2) Gift tax treatment of contributions
For purposes of chapters 12 and 13—

Where in Chapter 12 or Chapter 13 does it say that giving yourself money is a taxable gift? Giving yourself money may be a gift, but what do Chapters 12 and 13 say about such gifts?

Follow up for the brave: If you made a contribution of $100,000 to a 529 with your spouse as a beneficiary, would you file a gift tax return? What does 529(c)(2), not just (A), say about that gift?

Here is another fun question: If you give yourself a gift, how many generations have you skipped? :)
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