Student Question from: Vincent C.
Course: Fundamentals – Education Planning
For the basic rule of only using cash contributions for 529 Plans, can you roll over appreciated stocks from UTMA/UGMA and ESA? If so, do you have any taxable event tied to the rollover of stocks (if an unrealized gain exists)?
This is a really good question. Let me first say that unless you are a CPA, you will want to consult one before taking any action on something like this. You don’t want to put a client in a bad situation with the IRS, nor do you want to put yourself at risk. It’s very important that CFP® Certificants do not give advice in areas they are not legally qualified to do so.
You can use money from a UGMA/UTMA to open a 529 Plan. To do so, you must liquidate the assets, which would generally be a taxable event. Again, it’s very important to consult with a tax professional if doing this because there are a few restrictions to be aware of and procedural steps you need to follow.
In regards to the Coverdell ESA, you can contribute to a 529 with these proceeds. When you move money from an ESA to a 529, to avoid tax consequences, the transfer must be done in the same calendar year.
One more thing, in case I haven’t already mentioned it, be sure to CONSULT A TAX PROFESSIONAL before taking any action.
Hope that helps!