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Financial Planning / Tax Strategies
|Subject: Re: UGMA TO EDU IRA||Date: 10/17/2001 1:57 AM|
|Author: acm4tax||Number: 54662 of 121333|
Funny, I had someone call my office today with this very question.
Here's the catch, according to the rules for UGMA accounts, the funds must be used exclusively for the benefit of the child for which it was set up. This means whatever is in that account when the child turns of legal age, that the funds are turned over to that child. There is no other beneficiary.
In the 529 educational accounts, the beneficiary can be changed. So if the account is set up for a child, the owner can legally change the beneficiary before the child uses the funds earmarked for education. So for this reason there have been concerns about the legality of the transfer of UGMA accounts into 529 educational accounts.
However, since this has come up so many times, there are some investment companies, like Putnam, for example, that will segregate the contributions put into a 529 account between those for which the beneficiary cannot be changed and for those contributions made after a transfer from an UGMA account for which the beneficiary may be changed.
So since this is more of a legal question than a tax question, I would recommend before transferring any UGMA funds that you get a legal opinion from the legal department of the trustee of the 529 plan to which you will make this contribution.
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