529 Plan Transfer of Ownership

Discussion in 'Tax' started by jay1000, Jun 28, 2007.

  1. jay1000

    jay1000 Guest

    "From Commonwealth of Virginia 529 College Savings Plan
    Program Description

    Can I transfer ownership of the account?

    Yes. Ownership of the account can be transferred by changing
    the account owner. Written authorization is required from
    the current account owner. To request an Account Owner Change
    Form, please call our toll free number, 1-888-567-0540, or
    download the form from our web site, www.Virginia529.com.
    There may be tax consequences related to the transfer of a
    VEST account, so please contact a tax professional to
    determine the effect of an account transfer on your
    individual situation."

    My understanding is there are no tax consequences unless it
    is an "abusive" transfer. Can anyone suggest the
    circumstances under which there would be tax consequences?

    << ------------------------------------------------------- >>
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    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
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    jay1000, Jun 28, 2007
    #1
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  2. "jay1000" <> wrote:

    > "From Commonwealth of Virginia 529 College Savings Plan
    > Program Description
    >
    > Can I transfer ownership of the account?
    >
    > Yes. Ownership of the account can be transferred by changing
    > the account owner. Written authorization is required from
    > the current account owner. To request an Account Owner Change
    > Form, please call our toll free number, 1-888-567-0540, or
    > download the form from our web site, www.Virginia529.com.
    > There may be tax consequences related to the transfer of a
    > VEST account, so please contact a tax professional to
    > determine the effect of an account transfer on your
    > individual situation."
    >
    > My understanding is there are no tax consequences unless it
    > is an "abusive" transfer. Can anyone suggest the
    > circumstances under which there would be tax consequences?


    Wouldn't transfer of ownership be subject to gift tax
    considerations?

    Ira Smilovitz

    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    Ira Smilovitz, Jul 1, 2007
    #2
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  3. jay1000 <> writes:

    [talks about changing the "Account owner" of a 529 plan]

    > My understanding is there are no tax consequences unless it
    > is an "abusive" transfer. Can anyone suggest the
    > circumstances under which there would be tax consequences?


    Well, if the account is worth more than $12,000, I believe
    there will be gift tax consequences (a gift tax return would
    have to be filed even if (as would be likely) no gift tax
    due).

    --
    Rich Carreiro

    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    Rich Carreiro, Jul 1, 2007
    #3
  4. jay1000

    Bill Brown Guest

    Rich Carreiro <> wrote:
    > jay1000 <> writes:


    > [talks about changing the "Account owner" of a 529 plan]


    >> My understanding is there are no tax consequences unless it
    >> is an "abusive" transfer. Can anyone suggest the
    >> circumstances under which there would be tax consequences?


    > Well, if the account is worth more than $12,000, I believe
    > there will be gift tax consequences (a gift tax return would
    > have to be filed even if (as would be likely) no gift tax
    > due).


    So there is potentially two gift taxes, one when the
    custodian transfers money to the 529 plan and a second when
    the custodian transfer custodial rights to another person?

    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    Bill Brown, Jul 2, 2007
    #4
  5. jay1000

    joetaxpayer Guest

    Ira Smilovitz wrote:
    > "jay1000" <> wrote:


    >> "From Commonwealth of Virginia 529 College Savings Plan
    >> Program Description
    >>
    >> Can I transfer ownership of the account?


    > Wouldn't transfer of ownership be subject to gift tax
    > considerations?


    Agreed, but wouldn't this transfer be subject to the same 5
    year rule (that you can gift up to 5 years' worth or $60K
    and while you must file a gift tax form, there is no tax
    due)?

    JOE

    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    joetaxpayer, Jul 2, 2007
    #5
  6. joetaxpayer <> wrote:
    > Ira Smilovitz wrote:
    >> "jay1000" <> wrote:


    >>> "From Commonwealth of Virginia 529 College Savings Plan
    >>> Program Description
    >>>
    >>> Can I transfer ownership of the account?


    >> Wouldn't transfer of ownership be subject to gift tax
    >> considerations?


    > Agreed, but wouldn't this transfer be subject to the same 5
    > year rule (that you can gift up to 5 years' worth or $60K
    > and while you must file a gift tax form, there is no tax
    > due)?


    There's no five year rule. There is a lifetime exclusion.
    You can give up to a total of $1,000,000 that is supposed to
    appear on gift tax returns before any tax is due.

    Stu

    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    Stuart Bronstein, Jul 2, 2007
    #6
  7. jay1000

    joetaxpayer Guest

    Stuart Bronstein wrote:
    > joetaxpayer <> wrote:
    >> Ira Smilovitz wrote:
    >>>"jay1000" <> wrote:


    >>>> "From Commonwealth of Virginia 529 College Savings Plan
    >>>> Program Description
    >>>>
    >>>> Can I transfer ownership of the account?


    >>> Wouldn't transfer of ownership be subject to gift tax
    >>> considerations?


    >> Agreed, but wouldn't this transfer be subject to the same 5
    >> year rule (that you can gift up to 5 years' worth or $60K
    >> and while you must file a gift tax form, there is no tax
    >> due)?


    > There's no five year rule. There is a lifetime exclusion.
    > You can give up to a total of $1,000,000 that is supposed to
    > appear on gift tax returns before any tax is due.


    A deposit to the 529 has a 5 year look ahead, so one can put
    in $60 and not tap the $1M lifetime gifting credit. If you
    are suggesting this is ignored for transfer of beneficiary,
    that may be. But 529s have a five year rule. There seem to
    be a number of specific details that are either unadressed
    or not well publicized, I think this is one of them.

    JOE

    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    joetaxpayer, Jul 3, 2007
    #7
  8. "Stuart Bronstein" <> wrote:
    > joetaxpayer <> wrote:
    >> Ira Smilovitz wrote:
    >>> "jay1000" <> wrote:


    >>>> "From Commonwealth of Virginia 529 College Savings Plan
    >>>> Program Description
    >>>>
    >>>> Can I transfer ownership of the account?


    >>> Wouldn't transfer of ownership be subject to gift tax
    >>> considerations?


    >> Agreed, but wouldn't this transfer be subject to the same 5
    >> year rule (that you can gift up to 5 years' worth or $60K
    >> and while you must file a gift tax form, there is no tax
    >> due)?


    > There's no five year rule. There is a lifetime exclusion.
    > You can give up to a total of $1,000,000 that is supposed to
    > appear on gift tax returns before any tax is due.


    There is a five year rule with regard to contributions to a
    529 plan. You can lump five years of contributions into a
    single year and not trigger the gift tax as long as you do
    not make any additional gifts to that individual for the
    five year period.

    Ira Smilovitz

    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    Ira Smilovitz, Jul 3, 2007
    #8
  9. joetaxpayer <> wrote:
    > Stuart Bronstein wrote:


    >> There's no five year rule. There is a lifetime exclusion.
    >> You can give up to a total of $1,000,000 that is supposed to
    >> appear on gift tax returns before any tax is due.


    > A deposit to the 529 has a 5 year look ahead, so one can put
    > in $60 and not tap the $1M lifetime gifting credit. If you
    > are suggesting this is ignored for transfer of beneficiary,
    > that may be. But 529s have a five year rule. There seem to
    > be a number of specific details that are either unadressed
    > or not well publicized, I think this is one of them.


    Thanks. I hadn't read the title of the thread and thought
    you were talking about gifts in general.

    Stu

    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    Stuart Bronstein, Jul 5, 2007
    #9
  10. jay1000

    jay1000 Guest

    Bill Brown <> wrote:
    > Rich Carreiro <> wrote:
    >> jay1000 <> writes:


    >> [talks about changing the "Account owner" of a 529 plan]


    >>> My understanding is there are no tax consequences unless it
    >>> is an "abusive" transfer. Can anyone suggest the
    >>> circumstances under which there would be tax consequences?


    >> Well, if the account is worth more than $12,000, I believe
    >> there will be gift tax consequences (a gift tax return would
    >> have to be filed even if (as would be likely) no gift tax
    >> due).


    > So there is potentially two gift taxes, one when the
    > custodian transfers money to the 529 plan and a second when
    > the custodian transfer custodial rights to another person?


    The 529 is a peculiar animal. It can be funded by your
    annual gifting to it's beneficiary. So there is no gift
    tax. The amount of the gift is no longer part of your
    esatate. But you are still the owner of the 529. You can
    change the beneficiary to some other relative with no tax
    consequence. Apparantly you can also change the ownership
    with a "maybe" tax consequences. My question is why a
    "maybe"? If I could understand what would trigger a tax, I
    might be able to avoid it.

    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    jay1000, Jul 5, 2007
    #10
  11. jay1000

    A.G. Kalman Guest

    Rich Carreiro wrote:
    > jay1000 <> writes:


    > [talks about changing the "Account owner" of a 529 plan]


    >> My understanding is there are no tax consequences unless it
    >> is an "abusive" transfer. Can anyone suggest the
    >> circumstances under which there would be tax consequences?


    > Well, if the account is worth more than $12,000, I believe
    > there will be gift tax consequences (a gift tax return would
    > have to be filed even if (as would be likely) no gift tax
    > due).


    I may be confused but the donee of a 529 (QTP) plan is the
    beneficiary. When one makes a contribution to a QTP the
    rules relating to gift taxes are based on the donor making a
    completed gift to the donee (beneficiary). I don't see how
    there would be gift tax implications just because the owner
    (trustee) is changed.

    Now, if the new owner changes the beneficiary there could be
    gift tax implications. Here is the paragraph in Sec. 529:

    (B) Treatment of designation of new beneficiary.--
    The taxes imposed by chapters 12 and 13 shall apply
    to a transfer by reason of a change in the designated
    beneficiary under the program (or a rollover to the
    account of a new beneficiary) unless the new
    beneficiary is--
    (i) assigned to the same generation as (or a
    higher generation than) the old beneficiary
    (determined in accordance with section 2651), and
    (ii) a member of the family of the old beneficiary.

    In other words, the new beneficiary would have to be a
    member of the same family and either of the same generation
    or younger or gift taxes would come into play.

    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    A.G. Kalman, Jul 5, 2007
    #11
  12. jay1000

    jay1000 Guest

    joetaxpayer <> wrote:
    > Stuart Bronstein wrote:
    >> joetaxpayer <> wrote:
    >>> Ira Smilovitz wrote:
    >>>>"jay1000" <> wrote:


    >>>>> "From Commonwealth of Virginia 529 College Savings Plan
    >>>>> Program Description
    >>>>>
    >>>>> Can I transfer ownership of the account?


    >>>> Wouldn't transfer of ownership be subject to gift tax
    >>>> considerations?


    >>> Agreed, but wouldn't this transfer be subject to the same 5
    >>> year rule (that you can gift up to 5 years' worth or $60K
    >>> and while you must file a gift tax form, there is no tax
    >>> due)?


    >> There's no five year rule. There is a lifetime exclusion.
    >> You can give up to a total of $1,000,000 that is supposed to
    >> appear on gift tax returns before any tax is due.


    > A deposit to the 529 has a 5 year look ahead, so one can put
    > in $60 and not tap the $1M lifetime gifting credit. If you
    > are suggesting this is ignored for transfer of beneficiary,
    > that may be. But 529s have a five year rule. There seem to
    > be a number of specific details that are either unadressed
    > or not well publicized, I think this is one of them.


    The 5 year rule is another interesting feature of 529's.
    Assuming that this feature has NOT been used, are there any
    tax consequences to a transfer of ownership of a plain
    vanilla 529?

    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    jay1000, Jul 5, 2007
    #12
  13. jay1000

    joetaxpayer Guest

    jay1000 wrote:

    > The 529 is a peculiar animal. It can be funded by your
    > annual gifting to its beneficiary. So there is no gift
    > tax. The amount of the gift is no longer part of your
    > esatate.


    Exception - the gift-ahead amount of a 5-year gift is pulled
    back into your estate if you die before the 5 years have
    passed. e.g. if you gift $60K to a 529, and die tomorrow,
    $48K is still part of your estate.

    > But you are still the owner of the 529. You can
    > change the beneficiary to some other relative with no tax
    > consequence.


    If the beneficiary is more than a generation off (as a shift
    to a grandchild), there may be 'generation-skipping' issues,
    and consequent taxes.

    > Apparantly you can also change the ownership
    > with a "maybe" tax consequences. My question is why a
    > "maybe"? If I could understand what would trigger a tax, I
    > might be able to avoid it.


    I believe the 'maybe' stems from potential abuses. As you
    stated in your initial question, the IRS wants to avoid
    'abusive' transfers. The use (misuse) of these accounts can
    potentially move quite a bit of money around. I'm also
    thinking about the aspect of "poor man's trust" that a 529
    can serve. It's money removed from one's estate, has more
    flexibility than a revocable trust, and needs no trust
    documents (with all the costs of same). The downside of this
    use is the investments within the 529 are limited, and carry
    higher fees, and the 10% non-school withdrawal penalty.

    This doesn't answer the question. I look forward to a clear
    answer on the exact details. Remember, there's two potential
    transfers, change of beneficiary and change of owner. A
    clear answer on when there are gift tax consequences would
    be great.

    JOE

    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    joetaxpayer, Jul 6, 2007
    #13
  14. "A.G. Kalman" <> writes:

    > I may be confused but the donee of a 529 (QTP) plan is the
    > beneficiary. When one makes a contribution to a QTP the
    > rules relating to gift taxes are based on the donor making a
    > completed gift to the donee (beneficiary). I don't see how
    > there would be gift tax implications just because the owner
    > (trustee) is changed.


    The owner (trustee) can take money out of the 529 at
    any time for any reason (though he'll pay income tax
    and a 10% penalty tax on earnings if the distribution
    isn't used for the beneficiary's qualified education
    expenses).

    If the owner can name a different owner of the 529
    plan, and if that transfer was not subject to gift
    tax, that would create a massive loophole in the
    gift/estate tax structure.

    I know Congress can be brain-dead, but I doubt
    they were that brain-dead. Therefore I'm willing
    to bet that:
    (a) ownership of a 529 plan can't be changed, or
    (b) if it can be, gift tax rules do apply.

    --
    Rich Carreiro

    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    Rich Carreiro, Jul 6, 2007
    #14
  15. jay1000

    A.G. Kalman Guest

    Rich Carreiro wrote:
    > "A.G. Kalman" <> writes:


    >> I may be confused but the donee of a 529 (QTP) plan is the
    >> beneficiary. When one makes a contribution to a QTP the
    >> rules relating to gift taxes are based on the donor making a
    >> completed gift to the donee (beneficiary). I don't see how
    >> there would be gift tax implications just because the owner
    >> (trustee) is changed.


    > The owner (trustee) can take money out of the 529 at
    > any time for any reason (though he'll pay income tax
    > and a 10% penalty tax on earnings if the distribution
    > isn't used for the beneficiary's qualified education
    > expenses).
    >
    > If the owner can name a different owner of the 529
    > plan, and if that transfer was not subject to gift
    > tax, that would create a massive loophole in the
    > gift/estate tax structure.
    >
    > I know Congress can be brain-dead, but I doubt
    > they were that brain-dead. Therefore I'm willing
    > to bet that:
    > (a) ownership of a 529 plan can't be changed, or
    > (b) if it can be, gift tax rules do apply.


    I don't know what massive loophole you refer to. Any
    contribution to a 529 plan is a completed gift. Until such
    time that one changes the designated beneficiary there can't
    be any "gift tax" consequences as no gift is made when the
    owner or participant (as some plans call the account owner)
    is changed. A change in the account owner has no immediate
    impact to the designated beneficiary. Distributions may have
    "income tax" consequences to the distributee.

    The Pension Protection Act of 2006 added Sec. 529(f) that
    gives the Treasury Sec'y authority to "prescribe such
    regulations as may be necessary or appropriate to carry out
    the purposes of this section and to prevent abuse of such
    purposes, including regulations under chapters 11, 12, and
    13 of this title."

    No regulations have been issued. I have no doubt that if
    abuse of the 529 rules relating to gift and/or estate taxes
    occurs, the regulations would be forthcoming.

    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    A.G. Kalman, Jul 9, 2007
    #15
  16. jay1000

    joetaxpayer Guest

    Rich Carreiro wrote:

    > If the owner can name a different owner of the 529
    > plan, and if that transfer was not subject to gift
    > tax, that would create a massive loophole in the
    > gift/estate tax structure.
    >
    > I know Congress can be brain-dead, but I doubt
    > they were that brain-dead. Therefore I'm willing
    > to bet that:
    > (a) ownership of a 529 plan can't be changed, or
    > (b) if it can be, gift tax rules do apply.


    From pub970;

    Changing the Designated Beneficiary

    There are no income tax consequences if the designated
    beneficiary of an account is changed to a member of the
    beneficiary's family (defined above). [a list of 9
    relationships follows the cite above]

    Rich I agree with your logic 100%, to me even such
    flexibility on beneficiaries is opening a door for abuse. Do
    you (or anyone here) have any IRS reference that the owner
    change is what triggers the gift tax consideration? And if
    gift tax applies, does the 5X rule allow a shift of
    $60K/owner with no tax?

    Just from a logistics standpoint, if I transfer an account
    to a cousin as beneficiary, I'd rather not be saddled with
    the 'ownership' as well, would it be natural to want to
    change the owner to the new beneficiary's parent? Whatever
    the case, I'd love to see a definitive explanation of this.

    JOE

    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    joetaxpayer, Jul 9, 2007
    #16
  17. jay1000 wrote:

    > Apparantly you can also change the ownership
    > with a "maybe" tax consequences. My question is why a
    > "maybe"? If I could understand what would trigger a tax, I
    > might be able to avoid it.


    According to the official offering document for the "U.
    Plan" (which is Massachusetts's Section 529 plan), the owner
    of a 529 plan cannot be changed (except that a designated
    successor owner can be named for when the original owner
    dies). According to the document, if you want to change the
    owner of the plan, the existing owner would have to close
    out the plan (and therefore pay income tax and the penalty
    tax on the earnings), give the money to the desired new
    owner (and so have to file a gift tax return) and the new
    owner would open the account with the money.

    --
    Rich Carreiro

    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    Rich Carreiro, Jul 9, 2007
    #17
  18. "A.G. Kalman" <> writes:

    > I don't know what massive loophole you refer to.


    The massive loophole would be (if changing owners
    were allowed) this:
    1) I put $N into a 529, with myself as owner/participant
    and whoever as beneficiary.
    2) Now I change the the owner/participant to someone else.
    3) That person takes all the money out as a non-qual
    distribution.

    If there's no gift tax at step (2), I've just managed to
    transfer $N to the other person free of gift tax
    consequences.

    As for objecting to step (3), at least for MA's 529 plan
    (and I suspect all others), the owner/participant is free to
    take the money out for any reason, though they'll of course
    have to pay income tax and the 10% penalty on any earnings.

    > contribution to a 529 plan is a completed gift. Until such
    > time that one changes the designated beneficiary there can't
    > be any "gift tax" consequences as no gift is made when the
    > owner or participant (as some plans call the account owner)
    > is changed. A change in the account owner has no immediate
    > impact to the designated beneficiary.


    At least for MA's 529 plan, the owner/participant *cannot*
    be changed. To "change" the participant, the original
    participant must close out the account, paying income tax
    and the penalty on the earnings, give the money to the
    desired new participant (and that's where the gift tax will
    come into play) and the new participant will have to open a
    new 529 account and contribute back the money.

    > Distributions may have "income tax" consequences to the distributee.


    To be specific, distributions made to the beneficiary or his
    school are taxed to the beneficiary (to the extent they are
    non-qualified) and distributions made to anyone else are
    taxed to the owner/participant.

    --
    Rich Carreiro

    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    Rich Carreiro, Jul 13, 2007
    #18
  19. jay1000

    A.G. Kalman Guest

    Rich Carreiro wrote:
    > "A.G. Kalman" <> writes:


    >> I don't know what massive loophole you refer to.


    > The massive loophole would be (if changing owners
    > were allowed) this:
    > 1) I put $N into a 529, with myself as owner/participant
    > and whoever as beneficiary.
    > 2) Now I change the the owner/participant to someone else.
    > 3) That person takes all the money out as a non-qual
    > distribution.
    >
    > If there's no gift tax at step (2), I've just managed to
    > transfer $N to the other person free of gift tax
    > consequences.


    May be my problem is with "massive." If I want to transfer
    X$ to someone else and avoid gift tax, why not just gift the
    $12000 to that someone else rather than putting it into a
    529 and then changing owners? If I put more than $12000
    into the 529, I pay gift tax. Now... someone is going to
    bring up the five year rule of gifting $60000 into the 529
    plan all at once. I would think that if the owner changes
    within the five year period there would be a prorated amount
    subject to tax (just as if the donor had died before 5 years
    elapsed). If not, then this is an example of abuse that the
    Sec'y can fix via the regulation authority granted by
    Congress in the Pension protection Act.

    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    A.G. Kalman, Jul 13, 2007
    #19
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