Technical corrections would eliminate 529 gift loophole

The Tax Technical Corrections Act of 2003 (HR12918) would remove a potential loophole in IRC Sec. 529 by clarifying that a change of account beneficiary to a new beneficiary who is not a qualifying member of the family is treated as a gift, even when old and new beneficiaries belong to the same generation. As it now stands, a gift arises only when the new beneficiary is at least one generation below the old beneficiary, raising the possibility that 529 funds transferred away from the beneficiary's family, although a distribution for income tax purposes, would not have to be treated as a transfer for gift tax purposes.
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