Transferring a UTMA 529 to another child

[snoops]

Hi, I opened 529s for my two children many years ago. Because I thought you could change beneficiaries of the 529 plan, I never worried about overfunding my older child's 529 as I thought I could change the beneficiary to my younger child if I overfunded it. What I didn't understand until recently is that my financial institution set up the 529's as UTMA 529's which are harder, if not impossible, to change beneficiaries. My older child is now in college and will have amounts remaining in the 529 after graduating. My financial institution is unhelpful in advising me on whether/how we can transfer the leftover 529 amounts to my younger child. Different advisors have indicated that (1) it's not possible to do this and/or (2) that it might be possible, although they didn't know the details. Does anyone have experience with UTMA 529's and whether it's possible to change beneficiaries/transfer the funds to another 529 (and if so, how it's done)?

[dcandmc]

The money in the UTMA 529 account belongs to the beneficiary, in the legal sense. The only person who can choose to transfer the money to a sibling (or any other relative under the 529 rules) is the beneficiary (who is also the legal account owner), and that decision should not be made under duress or coercion, or while the beneficiary/account owner is a minor.

That's interesting that the financial institution set up the 529 accounts as UTMAs, because that is certainly not the default course of action.

[snoops]

Thanks for the reply. While my older child could transfer amounts in his 529 to my younger child's 529, do you know if that would that create a tax liability for him since it wouldn't be an educational expense? If so, is there any way to avoid this? E.g., could he make her a beneficiary on the account? (and I have no idea why the institution set them up as UTMA's and was pretty annoyed when I found out. I set them up when they (and I) were very young and I didn't even realize you could have a UTMA 529 - I thought all 529s were the same).

[dcandmc]

A transfer of 529 funds from one sibling's account to that of another is not normally a taxable event when a parent is the owner of both accounts, although in your situation with the UTMA accounts all bets are off. If you are asking if your son can add your daughter as a beneficiary on his account, the answer is no. Each 529 account can only have one beneficiary at a time.