Tax consequences for transferring account owners

[Chris]

My sons account owner is his grandma but she wants me to be the account holder now that he is going to college. Are there any tax consequences to me if I become the new account owner? Just trying to find this out before we do it.

[dcandmc]

If you are asking if there are any tax consequences for you based solely on a 529 account change of ownership from the grandmother to you, the answer is no.

[Chris]

Thank you :). Yes that is was I wanted to know. I thought I read somewhere that since I was the new account owner that it is considered a asset of mine. So if I understand this correctly She can transfer account ownership to me now and I won’t have to pay any taxes as long as the money is distributed to the beneficiary for his educational expenses like when it was in her name.

[dcandmc]

Thank you :). Yes that is was I wanted to know. I thought I read somewhere that since I was the new account owner that it is considered a asset of mine. So if I understand this correctly She can transfer account ownership to me now and I won’t have to pay any taxes as long as the money is distributed to the beneficiary for his educational expenses like when it was in her name.

If the 529 account ownership is transferred to you, it will be considered an asset of yours. There may be future gift tax reporting considerations, and depending on how and by whom future account distributions are used, there may be taxes (and possibly penalties as well) owed on the earnings portion of distributions.

[Chris]

Hi— sorry to be a pain but I’m truly trying to understand. What are gift taxes? How would they possibly affect me? The grandmother doesn’t want to be involved with it anymore and that’s why she wants to transfer it to my name. But I just can’t afford to pay any possible taxes that might be associated with the account transfer. We would have the beneficiary use the money for educational expenses only as to avoid any penalties or taxes. Strictly educational.

[dcandmc]

Hi— sorry to be a pain but I’m truly trying to understand. What are gift taxes? How would they possibly affect me?

There may be future gift tax reporting considerations. I can't give you a tutorial on gift taxes, and besides, you shouldn't take tax advice or instruction from an anonymous internet forum poster.

The grandmother doesn’t want to be involved with it anymore and that’s why she wants to transfer it to my name. But I just can’t afford to pay any possible taxes that might be associated with the account transfer. We would have the beneficiary use the money for educational expenses only as to avoid any penalties or taxes. Strictly educational.

To repeat: If you are asking if there are any tax consequences for you based solely on a 529 account change of ownership from the grandmother to you, the answer is no.

If you don't understand or need further explanation, you need to consult a trusted tax preparer or advisor.