529 ownership to student?

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epilnk
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529 ownership to student?

Post by epilnk »

My kids each have a grandparental 529 sufficient to pay for a little more than half of college. (We also funded 529s of our own.) My kids will be in their first and third years of college this fall.

We have not yet accessed these accounts because the grandparents are getting well on in years (mid to upper 80s), not the easiest to deal with, far away, and expense tracking has been a headache even without involving them. But with elder son entering his third year it is time. Direct tuition payment from the 529 to the school is way more trouble than it's worth even for me, because apparently the college accounting office doesn't handle it well and the one time I tried that it was a disaster. Even the college admits it's a bad idea. Plus my son is living off campus this year so he has to pay living expenses privately. This is all too much for the grandparents.

The obvious thing would be to simply transfer account ownership to my husband (their son) and let us (me) deal with it. However I am wondering whether they could transfer it directly to our son instead, and then he could take the withdrawals to pay his tuition, supplies, and living expenses.

So my questions are:
  • 1. Is this possible?
    2. Is this a good, bad, or absolutely terrible idea?
    3. Are there tax consequences to consider? He is currently a dependent on our return, and will have a part time job. If he is technically paying his own support from a 529 where he is both owner and beneficiary, does that change?
    4. What am I overlooking?
I am not even a tiny bit concerned that he would mishandle it - he is responsible and reliable.
lazynovice
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Re: 529 ownership to student?

Post by lazynovice »

Bumping this to see if you get some answers.

There is some info on this in the wiki

https://www.bogleheads.org/wiki/529_pla ... _transfers

1. Yes, it is possible depending on your plan sponsor
2. I think transferring it to you is a decent idea. Even if you trust your son not to blow the money- do you trust him to keep up with the record keeping?
3. There have been a few threads on the dependency test and 529s, especially in light of the stimulus payments. You should read those.
4. I don’t believe changing the ownership to you triggers a taxable event as long as remains the beneficiary.
“I didn’t want my sailboat to be in the driveway when I died.” Nomadland
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RickBoglehead
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Re: 529 ownership to student?

Post by RickBoglehead »

Grandparents could give you or your husband online access to the accounts via a Limited POA. For example, with Utah's My529, you would fill out form 800 and they would fill out 810 and get the signature notarized. https://my529.org/other-essentials/freq ... -requests/

The ownership transfer form, 505, requires them to sign and you to sign. Not as easy if they are remote.
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epilnk
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Re: 529 ownership to student?

Post by epilnk »

The tax problem comes from paying for room and board. Either he or we will have to pay these to the landlord (grocery store, etc) and then be reimbursed by the 529. So we need to document these and claim them properly on the tax return to avoid triggering a taxable event.

This seems much harder with 3 parties involved. If they are the owners and I manage the funds for his benefit with a POA, whose tax return does it go on? They own the 529, which sends money to me, who pays his landlord. Who has to prove that this is a qualified expense? They’re the ones paying for his education but it’s passing through my bank account.
DIFAR31
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Re: 529 ownership to student?

Post by DIFAR31 »

epilnk wrote: Fri Jun 11, 2021 12:40 am The tax problem comes from paying for room and board. Either he or we will have to pay these to the landlord (grocery store, etc) and then be reimbursed by the 529. So we need to document these and claim them properly on the tax return to avoid triggering a taxable event.

This seems much harder with 3 parties involved. If they are the owners and I manage the funds for his benefit with a POA, whose tax return does it go on? They own the 529, which sends money to me, who pays his landlord. Who has to prove that this is a qualified expense? They’re the ones paying for his education but it’s passing through my bank account.
I don't see where there is a "tax problem." If all the 529 distributions are used for qualified expenses (including room and board up to the school's published cost of attendance), there is nothing to report on anyone's tax return.
lazynovice
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Re: 529 ownership to student?

Post by lazynovice »

epilnk wrote: Fri Jun 11, 2021 12:40 am The tax problem comes from paying for room and board. Either he or we will have to pay these to the landlord (grocery store, etc) and then be reimbursed by the 529. So we need to document these and claim them properly on the tax return to avoid triggering a taxable event.

This seems much harder with 3 parties involved. If they are the owners and I manage the funds for his benefit with a POA, whose tax return does it go on? They own the 529, which sends money to me, who pays his landlord. Who has to prove that this is a qualified expense? They’re the ones paying for his education but it’s passing through my bank account.
Are you pulling funds frequently? We only pull three times a year- Beginning of spring, fall and summer. We pull up to the amount of the school’s published cost of attendance for room and board. As far as tracking, we have rent payments and we have their credit card statements for all purchases they make. We do not keep receipts.

If the IRS audits us, maybe we are out of luck but the biggest item is rent and we have that nailed down. I don’t see the IRS spending time auditing people who pull out amounts below the school’s published COA.

All that is required for the tax return is reporting money spent on non-qualified expenses. TurboTax will also you about expenses and about receipts but the reporting requirement is only- did you spend any of this money on non-qualified expenses and if you did here is the tax and penalty. So if no one spends money on non-qualified expenses from the 529, no one reports anything.
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RickBoglehead
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Re: 529 ownership to student?

Post by RickBoglehead »

epilnk wrote: Fri Jun 11, 2021 12:40 am The tax problem comes from paying for room and board. Either he or we will have to pay these to the landlord (grocery store, etc) and then be reimbursed by the 529. So we need to document these and claim them properly on the tax return to avoid triggering a taxable event.

This seems much harder with 3 parties involved. If they are the owners and I manage the funds for his benefit with a POA, whose tax return does it go on? They own the 529, which sends money to me, who pays his landlord. Who has to prove that this is a qualified expense? They’re the ones paying for his education but it’s passing through my bank account.
Student pays landlord.
Parent fronts student money if needed.
Parent gets Grandparent to reimburse parent 2-3 times per year. Done.
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SchruteB&B
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Re: 529 ownership to student?

Post by SchruteB&B »

DIFAR31 wrote: Fri Jun 11, 2021 12:11 pm
epilnk wrote: Fri Jun 11, 2021 12:40 am The tax problem comes from paying for room and board. Either he or we will have to pay these to the landlord (grocery store, etc) and then be reimbursed by the 529. So we need to document these and claim them properly on the tax return to avoid triggering a taxable event.

This seems much harder with 3 parties involved. If they are the owners and I manage the funds for his benefit with a POA, whose tax return does it go on? They own the 529, which sends money to me, who pays his landlord. Who has to prove that this is a qualified expense? They’re the ones paying for his education but it’s passing through my bank account.
I don't see where there is a "tax problem." If all the 529 distributions are used for qualified expenses (including room and board up to the school's published cost of attendance), there is nothing to report on anyone's tax return.
Agreed. There is nothing to report on your tax return if you are withdrawing funds from a 529 and all the funds are used for qualified education expenses (which room and board are) We keep receipts in our own files in case of an audit.
markcoop
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Re: 529 ownership to student?

Post by markcoop »

SchruteB&B wrote: Fri Jun 11, 2021 12:49 pm
DIFAR31 wrote: Fri Jun 11, 2021 12:11 pm
epilnk wrote: Fri Jun 11, 2021 12:40 am The tax problem comes from paying for room and board. Either he or we will have to pay these to the landlord (grocery store, etc) and then be reimbursed by the 529. So we need to document these and claim them properly on the tax return to avoid triggering a taxable event.

This seems much harder with 3 parties involved. If they are the owners and I manage the funds for his benefit with a POA, whose tax return does it go on? They own the 529, which sends money to me, who pays his landlord. Who has to prove that this is a qualified expense? They’re the ones paying for his education but it’s passing through my bank account.
I don't see where there is a "tax problem." If all the 529 distributions are used for qualified expenses (including room and board up to the school's published cost of attendance), there is nothing to report on anyone's tax return.
Agreed. There is nothing to report on your tax return if you are withdrawing funds from a 529 and all the funds are used for qualified education expenses (which room and board are) We keep receipts in our own files in case of an audit.
FYI - although it does not need to be reported on your taxes, Turbotax will ask questions about it.

Hopefully this will never come back to bite me, but I'm going on my third child in college and I never have saved receipts. I never have withdrawn more then the COA for room and board from the 529 account, even when off-campus, and therefore never thought I had to worry about it. I imagine if if ever needed I could sort through emails and bank statements to see rent paid. I just can't imagine the IRS being nit picky if you are within the COA of the school.
Mark
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