Gift taxes - 529 account & UTMA/UGMA brokerage account

A transfer to a UTMA account is normally considered to be an irrevocable gift. Income on the account is reported under the child's social security number, and the gift is included when determining the amount of the annual exemption that has been used.

yeah... after I'd sent, but before it was posted, I did think of that when I saw that the account statement

Glad I noticed all this - before sending $20k to the 529 - but then, both my wife & I can each do the $13k (or less) into the 529, and the Scwab account is just fine running by itself...

had his SSN listed -

If you live in a community property state, any gift is automatically considered half from each of you, so no gift tax return may be required at all. If you don't live in a community property state either one of you can make a gift and have it treated as if it came half from each of you - but you need to file a gift tax return and elect gift splitting.

I just went back and read §529. It says that you can make contributions to a 529 plan of more than $13,000 in a single year. If you do you can elect for purposes of the annual exemption to spread the gift equally over the five year period starting with the year of the gift.

Regarding 529 contributions- yes they are subject to gift tax limitations but there is a special 5-year averaging provision.

Per IRC Section 529---

(2) Gift tax treatment of contributions

For purposes of chapters 12 and 13--

(A) In general

Any contribution to a qualified tuition program on behalf of any designated beneficiary--

(i) shall be treated as a completed gift to such beneficiary which is not a future interest in property, and

(ii) shall not be treated as a qualified transfer under section 2503(e).

(B) Treatment of excess contributions

If the aggregate amount of contributions described in subparagraph (A) during the calendar year by a donor exceeds the limitation for such year under section 2503(b), such aggregate amount shall, at the election of the donor, be taken into account for purposes of such section ratably over the

5-year period beginning with such calendar year.

Regarding UTMA/UGMA, the keyword here is gift. It is a gift to the minor and put in an account for the minor. There may be a parent or other custodian for the account, but it is still the minor's money.

We are in Illinois - and using their Bright Start 529 program.

I knew about the 5 yr spead, as I've seen that mentioned in other discussions of 529 gifts, etc.

If each of us gifts to a single individual or 529 plan, can we each therefore give that person $13k each ?

So - we could give each of our nephews $13k x 2 or $26k, which could be a 529 account deposit or straight cash :)

========================================= MODERATOR'S COMMENT:

- yes. You can give anyone you wish $13K/yr. And so can your wife.

529 accounts seem to be rather odd beasts as regards gift taxes and gifting in general.

There is the gifting limit for deposits into the account, which is based on the beneficiaries. But unlike other completed gifts, the 529 moneys remain under the control of the donor. The donor decides how and when to distribute the funds. The donor also designates a successor as controller of the account in case of death. And the donor can change the beneficiary of the account.

So it seems rather odd that there are gift-tax consequences connected with the funds deposit when there isn't any guarantee that the donee will even get the funds. I haven't seen any mention of gift-tax implications when changing the beneficiary of the account. Are there any that I'm not aware of? Without them, what is to prevent someone from establishing several accounts, say for kids and nieces and nephews and then just changing the beneficiaries to just the kids. Does that provide a way around the gift tax limitations?

I'm not an expert on 529 plans. But in the normal gift situation, yes, you can each give a gift of $13,000. And again, one of you can give a gift of $26,000 and have it treated as coming half from each of you.

The thing that struck me is that normally helping pay a child's university expenses would be considered support rather than a gift. For gift tax purposes someone is a minor until age 21.