Are there any gift tax consequences when changing the beneficiary of a
529 college savings account?
Contributions to a 529 plan are clearly covered by the gift tax rules. But what about changing the beneficiary of the plan? Are there any gift tax considerations there?
There are no gift tax consequences if the new beneficiary is in the same generation or a generation above the old beneficiary and is a member of the same family as the old beneficiary.
I conclude, that there would be gift tax consequences if the new beneficiary is not in the same family or if the beneficiary is in a lower generation.
Here's the definition of family:
(2) Member of family The term ''member of the family'' means, with respect to any designated beneficiary - (A) the spouse of such beneficiary; (B) an individual who bears a relationship to such beneficiary which is described in subparagraphs (A) through (G) of section 152(d)(2); (C) the spouse of any individual described in subparagraph (B); and (D) any first cousin of such beneficiary.
I should have added, that there were 1998 proposed regulations that I believe support what is above from the Code. I have not had a chance to review the advance notice of rule changes (new proposed regs to eliminate potential abuse) that were published in January 2008.
Then you have made a gift equal to the value of the account. Normal gift tax rules apply. If the amount is in excess of $13,000 (2009 exclusion) to the new beneficiary then you must file a gift tax return and pay gift tax or use up some part of your lifetime exemption.
You've lost me. The account owner can only be an individual or a trust if the 529 plan allows an account owner to be a trust. The funds put into the account were a completed gift to the beneficiary. A change in account owner is not a gift to the new account owner. A beneficiary must be an individual. Therefore, there is no way to obtain any tax deductible charitable contribution by a change in account owner.
You may want to read the section in IRS Pub 970 that explains how QTP (Qualified Tuition Plans) work.
All contributions are after-tax. Therefore, to the extent that any distribution not used for qualified expenses contains a part of the contributions, that part would not be taxable (it's a return of principal). That part which is earnings on the account is taxable and subject to the 10% additional tax penalty.
Once you have the funds, you are free to do anything you want those funds.
Pub 970 explains how one calculates the taxable part of any distribution, and it also identifies any exceptions to the 10% penalty. You are not allowed to just withdraw your contributions.
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