529 rollover rules and UGMA/UTMA accounts

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
User avatar
Topic Author
orcycle
Posts: 238
Joined: Mon Jul 11, 2011 9:44 am

529 rollover rules and UGMA/UTMA accounts

Post by orcycle »

Years ago we converted our kids' UGMA/UTMA accounts to 529 accounts. As they were all under 18 (age of majority in our state), the new 529 accounts were custodial 529 accounts, so we were the custodians and they were the beneficiaries.

Our youngest child turned 18 earlier this year. A month or two later (and more than two years after our oldest turned 18), Vanguard sent us letters saying the 529 accounts needed to be transferred to our children as account owners, and they would freeze the accounts in 45 days.

I had previously transferred other Vanguard accounts to Fidelity for various reasons, so I wanted to do the same for these accounts. It turns out we can't, so we had to first transfer them to new Vanguard accounts in our children's names. :annoyed

One child's account did successfully transfer into her own Vanguard 529 account, and we were preparing to transfer those funds to her Fidelity account when I noticed a disclaimer above a signature block that says the IRS limits 529 rollovers to one per 12 months for the same beneficiary. Our child would still be the beneficiary, so I want to make sure this doesn't destroy the tax benefits.

Does the IRS consider a conversion from a custodial/UGMA-UTMA 529 account to a self-owned 529 account with the same beneficiary to be a rollover that can only happen once every 12 months? So my child would have to wait 12 months to move her account from Vanguard to Fidelity? Or is the custodial-to-self-ownership transfer not considered a rollover?

I read the wiki on this subject and tried to find the answer online but didn't find anything definite. I guess it's not a big deal to wait a year to transfer again but I would rather take care of it all now instead of setting a reminder to do this all over again a year later.
Post Reply