Child graduated with money left in 529 but going to grad school, other child still undergrad

[dkayton]

I have a situation that I couldn't find in forums. My daughter graduated with money left in her 529. She plans to get a PhD, in which case she will get a stipend, but it appears that she can still use her 529 money for room and board expenses.So we want to keep her 529 allocated to her. The stipend is not need-based so she would not apply for any financial aid. My son is a rising sophomore and we receive aid for him. It seems to me that I should convert my daughter's account from being owned by parents to being owned by her, so her balance will not count as our asset when filing for our son's aid.

Is there any downside to transferring her account to her under these circumstances?

[dkayton]

Hi, is anyone able to help me out with this question?

[dcandmc]

The only possible downside I can think of is that your daughter will have full control of the money in the 529 account if ownership is transferred to her. Probably not a factor, unless she has a history of being a spendthrift.

[mark]

You should verify with the 529 that you can change the ownership to the child. We did something similar in NY. I believe on the FAFSA it is clear that a child-owned 529 would not appear on a sibling FAFSA. Not so clear to me if that was true on the CSS Profile.

[dcandmc]

You should verify with the 529 that you can change the ownership to the child. We did something similar in NY. I believe on the FAFSA it is clear that a child-owned 529 would not appear on a sibling FAFSA. Not so clear to me if that was true on the CSS Profile.

CSS Profile treats sibling-owned 529 accounts the same way that FAFSA does (they are ignored), at least that was the case when I last dealt with Profile. I can't imagine that assets legally owned by a sibling would be considered fair game when calculating an EFC for the student.

[mark]

You are right. Thanks for the clarification. I was remembering a concern I had incorrectly. The concern was how a child-owned 529 is treated for financial aid. On the FAFSA, it is considered the asset of the parent. On the CSS Profile, I believe it is considered the asset of the child although I have heard some claim otherwise.

[dcandmc]

You are right. Thanks for the clarification. I was remembering a concern I had incorrectly. The concern was how a child-owned 529 is treated for financial aid. On the FAFSA, it is considered the asset of the parent. On the CSS Profile, I believe it is considered the asset of the child although I have heard some claim otherwise.

With Profile, how a student-owned 529 is treated (student asset or parent asset) will depend on the particular policy of each school that uses Profile. Contacting a school's FA office and asking the question is generally the only way to know.

[dkayton]

Thank you both for your answers!

If I understand the last two comments, I believe they're related specifically to who owns the account of the child applying for aid, but you both agree that an account owned by a sibling would be ignored by both FAFSA and CSS. Correct?

Also, I was about to transfer the account to my daughter, and the transfer form mentioned that there could be gift tax consequences when transferring the account. Do you know if this transfer would be considered a gift from us to our daughter, subject to $15,000 maximum annual gift transfer per person?

[dcandmc]

Thank you both for your answers!

If I understand the last two comments, I believe they're related specifically to who owns the account of the child applying for aid, but you both agree that an account owned by a sibling would be ignored by both FAFSA and CSS. Correct?

Correct.

Also, I was about to transfer the account to my daughter, and the transfer form mentioned that there could be gift tax consequences when transferring the account. Do you know if this transfer would be considered a gift from us to our daughter, subject to $15,000 maximum annual gift transfer per person?

There is no such thing as a "$15,000 maximum annual gift transfer per person..." Any person can gift as much as they want to any other person. There are IRS reporting requirements for gifts exceeding $15,000 (current annual limit) in one year from one person to another person, and given the existing estate and gift lifetime exclusion amount of $11.58 million, it's unlikely that any tax would actually be owed.

[mark]

I don't think a change of ownership from a parent to a child where the beneficiary remains the same (the child) would be considered a gift. 529s are unique in that they are considered a gift when the contribution is made, even though the parent typically retains ownership. Therefore, when a change of ownership is done, it is not a new gift and therefore does not need to be reported. Someone please correct if I got that wrong.

[dcandmc]

I don't think a change of ownership from a parent to a child where the beneficiary remains the same (the child) would be considered a gift. 529s are unique in that they are considered a gift when the contribution is made, even though the parent typically retains ownership. Therefore, when a change of ownership is done, it is not a new gift and therefore does not need to be reported. Someone please correct if I got that wrong.

There is not much, if any, direct IRS guidance on this specific issue, but I think what you state here is correct (or at least the right way to proceed without any direct guidance).