529 Plan as IRA Beneficiary

Submitted by [email protected] on Mon, 2008-06-23 14:25

Can I name an existing 529 plan as an IRA beneficiary, or direct that a new 529 plan be established with my IRA for my grandchild when I die?



Submitted by Alan Spross on Tue, 2008-06-24 04:34

No, this cannot be done directly. Probably the best way to accomplish this is by leaving the IRA to a trust which contains provisons requiring distribution and taxation of the IRA and investment of the proceeds in a 529 plan for the beneficiary. A 529 plan must be funded by cash contributions.



Submitted by [email protected] on Wed, 2021-05-26 13:46

I have a deceased client with an IRA that is about 80k.  The bene on the IRA is her estate and that money then flows to her grandkids’ 529 plans. Who pays the income tax in this situation? Does the estate pay the income tax since the beneficiaries are 529 plans or does the income from the IRA distribution need to be reported on the grandkids’ personal returns?



Submitted by Alan - IRA critic on Wed, 2021-05-26 14:42

Normally, the estate would pass the taxable income through to the estate beneficiaries on a K 1, and the beneficiaries would report the income on their personal returns.



Submitted by William Tuttle on Wed, 2021-05-26 16:51

I do not see how the grandchildren are beneficiaries of either the IRA or 529 contributions by the estate. There should be no direct or passed taxable income to the grandchildren on the 529 contributions.
The estate is the beneficiary of the taxable IRA distributions.
The 529 is the beneficiary of the estate distributions.
The estate is the one making the 529 contributions.
I would think the estate is solely liable for the tax liability of the IRA distributions used to make 529 contributions.
The estate would also be liable for any gift tax reporting requirements. An estate can not take advantage of the 5-year proration of gifts > the annual exclusion.



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