Opening 529 for yourself then changing bene to a grandchild?

[mariaku]

Hello,

Could I open a 529 account with myself as an owner and fund it for a higher amount, then a few years later change the account bene to my (not yet born now) grandchild?

Would this method allow me to fund the account (with me as a bene) for a higher amount than I could contribute to my grandchild-bene-designated account?

What could prevent me from doing as I suggest above?

Thank you for your thoughts,
MK

[dcandmc]

I don't understand your question. The account funding limit will be the same whether you are the named beneficiary or your grandchild is the named beneficiary.

[mariaku]

What prevents me from contributing say $200k to my own plan? My state CA allows up to $529k per beneficiary.
Am I somehow subject to gift tax for gifts to myself?

[dcandmc]

Nothing prevents you from contributing $200k to your own account, whether you are the beneficiary or a grandchild is the beneficiary. The only limit is what a particular plan allows, which apparently for the CA plan you are looking at is $529k. This is independent of who the beneficiary is. The issue of gift tax is irrelevant to how much you are able to contribute, although gift tax rules will dictate certain reporting requirements depending on the amount and timing of some 529 contributions.

[mariaku]

To clarify:
If I were to open a 529 with myself as a bene and contribute $200k to it today, then change the bene to my grandchild when it is born, then I would not need to file any gift tax forms when I switch the bene to my grandchild, correct? Because normally we're not expected to file a gift tax return when we switch a 529 bene.

[dcandmc]

An IRS Q & A on 529 plans states that "There are no tax consequences if you change the designated beneficiary to another member of the family." However, it is not clear if this applies to a situation when the beneficiary being changed from is the account owner.

https://www.irs.gov/newsroom/529-plans-questions-and-answers#:~:text=There%20are%20no%20tax%20consequences,member%20of%20the%20beneficiary%27s%20family.

However, your original question asked about different funding limitations depending on whether the account beneficiary was you as the account owner or a future grandchild. Is this still a concern?

[mariaku]

Thank you. You answered all my questions. I do understand the uncertainty regarding a situation when the beneficiary being changed from is the account owner, but the only downside is the IRS potentially making me file a 709 retroactively, with no penalties (and reducing my lifetime gift-tax exemption).

My goal is to start funding my grandchildren 529 plans now, even before they are born, so that none of the appreciation after the original contribution gets taxed (presuming all the funds are used for qualified education expenses by the "final" benes).

Once again, thank you!