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| Some states allow for the owner’s contribution to be tax deductable (within certain limits), but most do not provide any tax relief on additions to the account. Contributions are usually treated as gifts and are subject to the 2009 limit of $13,000 per individual (a couple could give 26k per year). But, a contributor may gift up to 5 years at once ($65,000). However, if the contributor passes away within the five years, a portion of the $65,000 may be included in the total estate. If you plan on making a large gift to a 529 plan, consult a tax advisor. |
| Assets in existing child accounts can also be used to fund a 529 plan. Money from Coverdell Education accounts can be rolled into a 529 plan without tax implications. UGMA and UTMA accounts can be used to fund 529 plans. However, these assets are in custodial format and belong to the minor. The owner is not allowed to change beneficiaries and control of the account goes to the minor when he or she reaches the age on majority (age 18 or 21 in many locations). Also, liquidating a custodial account may have additional tax liability if there is a capital gain. Existing assets transferred form a Coverdell, UTMA, or UGMA into a 529 college plan are not tax deductable. |
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