JBMEParticipantStatus: SpousePosts: 480Joined: 03/26/2018
If a grandparent, for their own convoluted reason, wants to gift more than $75k to a grandchild’s 529 account and not deal with filling out another tax form but doesn’t want to gift again next year or in the future, could the grandparent directly put $75k in the 529 to take advantage of the 5-year rule for 529s and then gift their child $15k with the promise that the child would then take the $15k and put it into the grandchild’s 529? From a tax perspective it would look like the parent gifted to a child and could take a state tax deduction.
This seems convoluted to me but a friend was asking if this was legally legit. Does anyone know?May 14, 2019 at 2:37 pm MST #214544jfoxcpacfpModeratorStatus: Financial Advisor, Accountant, Small Business OwnerPosts: 7939Joined: 01/09/2016
Do you remember all of that talk about the “step transaction” regarding backdoor Roth IRA’s? This is a kind of definitional example of the step transaction (I didn’t know definitional was a real word, but my iPad didn’t scold me, so I get no credit for making that word up). The answer is NO. Besides a gift is not a true gift (legally) if there are strings attached. Iow, attaching strings to the transaction is no different than the grandparents actually gifting that last $15k themselves.ENT DocParticipantStatus: PhysicianPosts: 3435Joined: 01/14/2017
But your iPad did add a w. 😉May 14, 2019 at 3:12 pm MST #214550MPMDParticipantStatus: PhysicianPosts: 2400Joined: 05/01/2017
I’ve actually looked into this in some depth and it’s not allowed. Nothing can be considered a gift with any strings attached.
The common error the casual observer makes is “well how could the IRS prove that an agreement was in place.” The issue here is that when you tussle with the IRS there is no presumption of innocence, the burden of proof is always on the taxpayer to prove that an arrangement was NOT in place — this would obviously be hard to do.
It would seem odd for a grandparent to be willing to contribute about $100k to a child’s education but balk at some basic tax planning and filing.PedsParticipantStatus: PhysicianPosts: 4186Joined: 01/08/2016but a friend was asking if this was legally legitClick to expand…
no.Faithful StewardParticipantStatus: Financial Advisor, Small Business OwnerPosts: 480Joined: 06/12/2017
If the grandparent is married, and the spouse is willing, they could simply use split gifting.
Michael Peterson, CFP® | Faithful Steward Wealth Advisors
https://ProsperousPhysician.com | (717) 496-0900