Grandparent owned 529

BelknapPoint
Fri, 24 May 2019 16:09:37 +0000

BelknapPoint Gonna ask you directly this question that relates to the original post.

On the specific issue of “transferring” ownership from the grandparent to a parent: I am wondering of transferring ownership is the only way/best way to get those funds in the parent-named account.

Say there is an account for the student Joe in the grandparent’s name in State # 1. The kid grew up with parent in State # 2.

Then for whatever reason, the parent and Joe want those funds in the parent’s name. It seems like there are two options:( I know that both options will mean that the dollars are IN the parent’s account and so will be included on the FAFSA.)

(1) work with grandparent to change name on the account in State # 1 (grandparent state) so that the account is now in the name of the parent.
(2) transfer the funds from the grandparent account in State # 1 to a pre-existing account in the parent’s name in State # 2.

Is Option (1) the only way to avoid immediately treating the money transfer like income for the student?

Does Option (2) require actually withdrawing the money first from the grandparent account and then immediately depositing into the parent account in the other state or is there a way to “transfer” without the dollars being treated like income? Do the two specific states matter?

To some extent, the answers will depend on the rules used by the specific 529 plans. Some will allow a change of ownership and some will not. The easiest way to transfer funds from one 529 account to another is with a rollover, but I don’t know if certain 529 plans have rollover restrictions that other plans do not.

A change of ownership from a grandparent-owned account to a parent-owned account or a rollover from a grandparent-owned account to a parent-owned account should not result in a financial aid reportable event as untaxed income for the student/account beneficiary, as neither event results in expenses being paid from a 529 account for the student’s benefit. However, once the assets come under the parent’s control, they will need to be reported as a parent asset.

I hope this answers your questions. If not, perhaps I am not correctly understanding what you are asking.