529 beneficiary transfer question

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Topic Author
ParlayBogle
Posts: 73
Joined: Mon Jun 11, 2012 9:01 pm

529 beneficiary transfer question

Post by ParlayBogle » Wed Jul 18, 2018 11:17 am

My grandfather owns a 529 account with $60k in it for the benefit of my cousin who has no plans to use the funds. Ultimately, we would like to figure out if the money could be used for the benefit of *my* children (his great-grand children), but it seems like the rules do not allow this to be done directly. Is there any backdoor way to achieve this?

Topic Author
ParlayBogle
Posts: 73
Joined: Mon Jun 11, 2012 9:01 pm

Re: 529 beneficiary transfer question

Post by ParlayBogle » Wed Jul 18, 2018 11:31 am

Also curious whether the answer changes for step-great-grandchildren.

momvesting
Posts: 104
Joined: Tue Apr 12, 2016 9:18 pm

Re: 529 beneficiary transfer question

Post by momvesting » Wed Jul 18, 2018 11:45 am

I don't know exactly where the line is for this, but early on we had 2 529s for our daughter. One was mine (company sponsored Ohio plan) and one was my husband's (Utah). Utah allowed us to roll the Ohio plan into the Utah even though they had different account owners. I wonder if your grandfather makes you the beneficiary, and you open your own separate account with you as the beneficiary if the two accounts can be merged into your account since you are qualifying family. Then at a later time you could change your beneficiary to one of your children.

Spirit Rider
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Joined: Fri Mar 02, 2007 2:39 pm

Re: 529 beneficiary transfer question

Post by Spirit Rider » Wed Jul 18, 2018 3:51 pm

The account owner and the beneficiary are separate issues. Your grandfather can rollover/change the beneficiary to you if you are a first cousin of the current beneficiary.

He can then rollover the assets to 529 plans with your children as beneficiaries. They would be a younger generation than you and your grandfather would be subject to new gift tax reporting.

Alternately, after rollover/change of beneficiary to you. The account owner could also be changed to you (if custodian allows) and you can rollover to your children with you being subject to the gift tax reporting.

Step-chilren are treated the same as biological children for change of beneficiary purposes.

Topic Author
ParlayBogle
Posts: 73
Joined: Mon Jun 11, 2012 9:01 pm

Re: 529 beneficiary transfer question

Post by ParlayBogle » Wed Jul 18, 2018 4:27 pm

So it doesn't matter that my step children and the original beneficiary (my cousin) are basically not at all related? You are able to just continue making step-wise beneficiary changes further and further away from the original beneficiary?

Spirit Rider
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Re: 529 beneficiary transfer question

Post by Spirit Rider » Wed Jul 18, 2018 4:40 pm

Publication 970 doesn't imply any restriction. Let me check the Code to see if there are.

P.S. I see nothing in either pub 970 or Section 529 that restricts the change of beneficiary relationship to the original beneficiary.

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JoeRetire
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Re: 529 beneficiary transfer question

Post by JoeRetire » Wed Jul 18, 2018 5:19 pm

ParlayBogle wrote:
Wed Jul 18, 2018 4:27 pm
So it doesn't matter that my step children and the original beneficiary (my cousin) are basically not at all related?
It doesn't matter if the original beneficiary and new beneficiary are related to each other. The owner just has to have the appropriate relationship to the new beneficiary.
Very Stable Genius

Spirit Rider
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Joined: Fri Mar 02, 2007 2:39 pm

Re: 529 beneficiary transfer question

Post by Spirit Rider » Wed Jul 18, 2018 9:17 pm

JoeRetire wrote:
Wed Jul 18, 2018 5:19 pm
ParlayBogle wrote:
Wed Jul 18, 2018 4:27 pm
So it doesn't matter that my step children and the original beneficiary (my cousin) are basically not at all related?
It doesn't matter if the original beneficiary and new beneficiary are related to each other. The owner just has to have the appropriate relationship to the new beneficiary.
The owner's relationship to either beneficiary is irrelevant.

The relationship of the new beneficiary to the current beneficiary is the only thing that matters.

47Percent
Posts: 362
Joined: Tue Oct 29, 2013 9:59 pm

Re: 529 beneficiary transfer question

Post by 47Percent » Wed Jul 18, 2018 11:11 pm

ParlayBogle wrote:
Wed Jul 18, 2018 4:27 pm
So it doesn't matter that my step children and the original beneficiary (my cousin) are basically not at all related? You are able to just continue making step-wise beneficiary changes further and further away from the original beneficiary?
Spirit Rider's post is correct; Relationship betn. former and new beneficiaries is the only one that matters.

But, your question definitely is intriguing.

For multiple reasons, I would suggest a two step transfer; Get it changed to you as the beneficiary first. Change the account ownership to yourself also.
Then do the next step of changing the beneficiary to your child(ren).

Reason 1: Easier time dealing with IRS. May even require this to be done to stay clear of unkown consequences.
Reason 2: Any gift tax 709 filing and further handling of withdrawal compliance etc. will have to be handled only by you. Your grand father will not have to bother with any tax filing requirement.

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