Is 529 Ownership Change Taxable?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
mbres60
Posts: 985
Joined: Tue Jul 03, 2007 1:47 pm

Is 529 Ownership Change Taxable?

Post by mbres60 » Thu Jan 16, 2020 12:00 pm

I want to set up some 529s with me as owner and my grandchildren as beneficiary. I will probably use New York's 529. They do allow ownership changes. If at some point I want to change the ownership to my children ( parents of my grandchildren) . Is this considered taxable? I have tried searching but can't seem to find out anything definitive.

Thanks.

mhalley
Posts: 7782
Joined: Tue Nov 20, 2007 6:02 am

Re: Is 529 Ownership Change Taxable?

Post by mhalley » Thu Jan 16, 2020 12:55 pm

It seems to be a little hazy. This expert recommends transferring the ownership to the grandchild instead of the parent, with the parent being the custodian.
https://www.bankrate.com/loans/student- ... to-parent/
Because college savings accounts can be a difficult asset to deal with when parents get divorced or separated, I would encourage you to consider transferring ownership to the grandchildren rather than to the parents. Although the parents will still act as account custodians while their children are minors, doing this helps to ensure that the funds are ultimately used for each respective grandchild.

Transferring ownership to the account beneficiary also avoids a potential gift-tax issue. Although there is nothing that currently says the mere change of ownership to the parents is to be treated as a gift from you to them, the IRS has proposed new rules that could in the future have that effect.

Spirit Rider
Posts: 12252
Joined: Fri Mar 02, 2007 2:39 pm

Re: Is 529 Ownership Change Taxable?

Post by Spirit Rider » Thu Jan 16, 2020 3:11 pm

This is not hazy at all.

A change of ownership is not an income taxable event if the 529 plan allows ownership changes. If the plan does not, the OP can rollover the 529 account to a state plan that allows ownership changes.

Since there is no change in beneficiary to a lower generation, there is no gift tax reporting liability.

Topic Author
mbres60
Posts: 985
Joined: Tue Jul 03, 2007 1:47 pm

Re: Is 529 Ownership Change Taxable?

Post by mbres60 » Thu Jan 16, 2020 5:14 pm

Thanks. I called NY 529 and the rep said he was with Vanguard. According to him, if I change ownership it is not taxable for federal income taxes. As for state he does not know. I am not in NY.

If anyone has any experience changing ownership it would be interesting to know if you encountered any issues.

FYI I prefer to own it as a grandparent til closer to college as my kids are not as financially literate as I am ;) I would change it closer to college because parental owned 529 is better for financial aid.

Post Reply