You decide the beneficiary.
Each account needs a named beneficiary with a social security number and physical address. Anyone with a valid U.S. Social Security or Taxpayer Identification Number can be a beneficiary. An owner may name him/herself as a beneficiary. The account owner and beneficiary do not need to be related, but any later transfers will be only to the beneficiary’s relatives (see below).
There are significant Utah state tax benefits to starting the beneficiary’s account before they turn 19 years of age. Other states allow tax deductions on accounts started at any age.
Sign up now for your own account–you become owner and beneficiary. If you have student loans, you have continuing education or licensing costs, or you later decide to go back to school some day, you will likely use it!
As a beneficiary is named, transfers may then be made to a member of that beneficiary’s family. Legal penalty-free transfers may be made to most relatives, including:
-The beneficiary’s father, mother, or ancestor of either.
-A child or descendant of a child (ie: a beneficiary’s grandchild or great grandchild).
-A stepfather or stepmother, stepson or stepdaughter.
-A brother, sister, stepbrother or stepsister.
-A half-brother or half-sister.
-A brother or sister of the father or mother.
-A brother-in-law, sister-in-law, son-in-law, daughter-in-law, father-in-law or
mother-in-law.
-A son or daughter of a brother or sister (niece or nephew).
-A spouse of the beneficiary or a spouse of the individuals mentioned above.
-A first cousin.
-A legally adopted child of an individual is treated as the child of that individual.
Carrie kindly starts an account for her financially-challenged neighbor who decides not to attend college. Carrie can later transfer unused funds to the neighbor’s sibling or cousin, but not back to Carrie’s own children’s funds.
Carrie may decide to instead cash out the funds and close the account, receiving a full refund of her deposits. Carrie will likely have to pay a small amount of federal and state taxes–as well as a 10% penalty–on any earnings.
No statement or example on this site should be considered a specific recommendation for your personal situation. Investing and tax strategies each carry significant risks. Examples herein may not apply to your situation. Please consult your estate attorney, tax advisor, or financial advisor for personal advice.