My D age 26 has a decent amount leftover in the 529 that I am the owner and and she is the beneficiary. She has asked if we can make her the owner, as she is an adult and managing her own finances. (She has a financial planner and is very responsible with her money). We’ve talked over options for the leftover funds, as well as the intended use of the funds (education, not just spending).
She is also engaged to be married soon. They are not doing a prenup. I am now wondering if I should transfer the 529 to her pre-marriage, so that it would not be considered as marital assets acquired during the marriage, and would remain hers in the event of a divorce.
Has anyone considered this or have this information? Or any other considerations about transferring the 529 ownership to her? Thank you.
Edit: we do not need to transfer the funds to any other family members or have needs for the leftover funds. We consider it hers and just want to protect it from any future risks.
Not sure how the Roth IRA works for marital assets but you can move up to $6k a year to her ($35k max). Perhaps it might be an option to look into. It’s a new rule this year.
And although none of my own kids listened to me… do you know why they aren’t doing a prenup? I am seeing too many horror stories right now- it seems like such a sensible and low impact way to protect yourself. But as I said- my kids refused so I know it’s considered something of a buzz kill these days.
May depend on the plan but I was told by Fidelity if I transferred ownership of a 529 to my son who was the beneficiary, Fidelity would treat it as a taxable event. The only exception they mentioned was death of the owner where it wouldn’t be treated as a taxable event.
Not sure the gift would ever be a marital asset or income. Most state laws allow either spouse to receive an inheritance or gift separate from a marital asset, and this would seem to fall in that category - a gift to one spouse.
We looked into this as well. As I recall, our accountant said transferring ownership was a taxable event for us. If it was taxed at D’s rate we may have done but not at our current rate. He suggested we retain ownership and then change the beneficiary in the future if the time ever came for that.
regarding prenup, when I asked she said no, definitely not. I didn’t pursue it further at the time. I may reopen the discussion but it didn’t sound like she was interested, at all.
I am not an expert on this, but wouldn’t it be in your daughter’s interest for you to continue to own the account, naming her as the bequeathed owner, should you pass away? There would be no taxable events, and the fund could continue to grow. When her possible-future children are eligible for it (either $10k towards K-12, or whatever amount towards higher education expenses), the grandkids can be named the beneficiaries of the fund. If you’re still alive and the owner, it won’t count against your daughter’s child when calculating their financial aid?
That is a good point. I will check on this as well. We were never eligible for need based aid but I do know that grandparent assets were never asked of us, I also don’t remember any questions about whether the child/student was the beneficiary of any 529 plans.
If parents own the 529 account, it would be counted as an asset in determining FA. But if grandparents or anyone other than a parents owns the 529, it would not count as its not really the child’s money (i.e. the owner could change the beneficiary at any time).