Can a parent open a 529 for a minor?

Question

Can a parent open a 529 on behalf of their minor-age kid, with the kid as beneficiary?

Note: I am not asking about an adult opening a 529 (on their own behalf) and naming their kid as a beneficiary, which is the most obvious use of a 529.

Answer 1

Yes, you can. You're thinking of a custodial 529, or a 529 plan under the Uniform Gifts to Minors Act and the Uniform Transfers to Minors Act.

It refers to account in a 529 plan funded with money already owned by your minor child. Because minors generally cannot directly own an investment or bank account, an adult custodian must manage and use the funds for the benefit of the minor child as prescribed under the state's Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA). Another name frequently used for a 529 account opened with UGMA/UTMA money is "custodial 529 account."

Nearly all 529 savings plans have special procedures to accommodate UGMA/UTMA 529s. For example, the plan administrator will not permit changes in the beneficiary designation prior to the current beneficiary's 18th or 21st birthday (depending on the state). And when the current beneficiary reaches the age of legal ownership, he or she will have the right to contact the 529 plan administrator and take direct ownership and control of the 529 account.

Speak to the 529 plan provider about this, but depending on the state where the 529 plan is incorporated, you should be able to take advantage of the UGMA to name your son as both the donor and the beneficiary.

Edward Jones (not an endorsement; it's one of the first links in a search) has this to say:

Custodial accounts are governed by laws adopted by each state. These laws include the Uniform Gifts to Minors Act (UGMA) and the Uniform Transfer to Minors Act (UTMA). Every state has enacted the UGMA. All but two states, South Carolina and Vermont, have adopted the UTMA.

A Custodial 529 account is established when assets in an existing custodial account (UGMA/UTMA) are liquidated and invested in a 529 plan. The account is administered by an adult, or custodian, until the beneficiary reaches the age of termination as determined by state law. Once the child reaches the age of termination, he or she will have complete control of the assets. At this time the assets should be moved out of the custodial account and into the child's name for qualified higher education expenses.

Custodial 529 accounts may be appropriate for an investor who currently has a custodial account and wants to make an irrevocable gift, in the form of cash, to a minor for qualified higher education expenses.

Correct me if I'm wrong, but I think this is exactly what you're after.

Answer 2

A 529 is typically "owned" by the parent with child as beneficiary. If you are asking if the child can be the owner as well, sure. This means that at 18 (or 21) they can do what they wish with the money. When the parent stays owner, its not quite a completed gift, even though it was subject to gift tax limits each year.

To be clear, your child can be the owner, as with an IRA that's his, but you still need to be his custodian until his age of majority. This is what you are wanting.