UTMA transfer to 529 EDVEST plan???
My son has contributed to his 3 kids (ages 7,9,and 11) into 3 UTMA accounts in past 3 to 4 years. His contributions in each account are $2151,$2403 and $1789. [b]The gains on the 3 accounts have accumulated to $1105,$1465, and $1371[/b].
Question, is this a taxable event when he transfers the monies from the 3 UTMA accounts into 3 seperate 529 EdVest plans.??? If so will there be any taxes owed by the kids if other than the UTMA gains there is just less than $100 interest to each kid from their savings accounts.
TIA………John 🙁
Permalink Submitted by Alan Spross on Tue, 2007-12-11 23:53
Yes, it is taxable because the UTMA assets are considered sold and cash contribution made to the 529. A direct rollover or tranfers cannot be done. The good news is that unless these kids have other income, the gains are below the threshold for the kiddie tax, and therefore the taxes would be at the child’s rate which is 10% of the amount of gain over I think about $850 or so for each.
Given the kiddie tax age increases, this appears to be a good move and the funds can earn tax free gains in the 529 as long as distributions are made for qualifying higher education expenses. The UTMAs can be terminated before gains accumulate and end up being taxed at the parent’s rate in future years. Finally, note that the beneficiary of the 529 plan will have to pair up with the funds for each child, and the 529 will not have the usual freedom to change beneficiaries in order to preserve each child’s legal interest originally acquired in the UTMAs. The 529 custodian should be told of the UTMA source of these funds.