May a parent deduct a transfer to a 529 plan on a joint Kansas return when the money belongs to a minor child and the parent acts only as custodian?

Plain-English summary

A parent held about $6,000 in a savings account in the parent's name as custodian for a minor child and planned to transfer it to a 529 account, again acting as custodian. The parent asked whether the contribution could be deducted on a joint Kansas income-tax return.

The Department said no. The funds belonged to the child. Although the parent handled the transfer as custodian, the child was the person making the 529 contribution. Because the parent did not contribute the parent's own funds, the parent could not claim the deduction.

What this means for you

Parents and custodians

Custodial control is not the same as ownership. Identify who legally owns the money before claiming a state deduction for a 529 contribution.

Tax preparers

Trace the contribution to its source account. A transfer of a child's custodial property is attributed to the child under this opinion, even when the parent signs and administers both accounts.

Families funding education accounts

The result could differ when a parent contributes the parent's own money. This letter decides only a transfer of funds that already belonged to the minor.

Common questions

Q: Why couldn't the parent claim the deduction?
A: The money belonged to the minor child, so the child—not the parent—made the contribution.

Q: Did being custodian make the parent the contributor?
A: No. The parent acted on the child's behalf but did not own the funds.

Q: Did the joint-return filing status change the result?
A: No. The source says the parent could not deduct the contribution on the joint return because the parent was not the contributor.

Q: Does this decide a contribution made from the parent's own account?
A: No. The opinion is limited to custodial funds belonging to the child.

Citations and references

• Kansas Department of Revenue's ownership-based treatment of the 529 contribution, as stated in the letter

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: O-2008-005

Original ruling text

Opinion Letter

Body:

Office of Policy & Research

October 9, 2008

XXXXX XXXXX
XXXXXXX

Re: Kansas Income Tax

Dear Ms. XXXXX:

Your correspondence of September 10, 2008 has been referred to me for response. Thank you for your inquiry.

Your e-mail indicates you have funds in a savings account that is in your name, custodial for a minor child. You indicate you are going to transfer the money, some $6,000, into a 529 plan, and that you will also be the custodian of that account. By your e-mail you ask whether you can deduct the contribution to the 529 plan on your income tax return, which you file as a joint return.

In response to your inquiry, please be advised the answer is “no”. Based on the information you have provided the funds to be contributed actually belong to the minor child, not to you. As a result, even though you are acting on behalf of the minor child it is really the minor child who is making the contribution to the 529 plan. Because you are not the one making the contribution you cannot claim a deduction for the contribution on your own income tax return.

I trust this information is of assistance. If I can be of further service, please feel free to contact me.

Sincerely,

Jim Weisgerber
Attorney
Tax Specialist

JW:jw

NOTE: This opinion letter is based solely on the facts provided in your request for advice. If material facts or information were not disclosed this letter is null and void. This letter will be revoked without further action by the Department if the statutes, administrative regulations, published revenue rulings, or court decisions that materially affect this opinion are changed.

Date Composed: 10/15/2008 Date Modified: 10/15/2008

Table 1

Table 2