• Marie-Yves Nadine Jean-Baptiste

529 Plans and Changing Beneficiaries

Updated: Jul 20, 2021

529 plans, also known as “Qualified Tuition Programs”, is operated by a state, nonprofit, or educational institution that offers tax-advantaged savings plans named after Section 529 of the Internal Revenue Code. It is designed to give an opportunity for families to save and pay for the costs of college or other higher education options. This includes tuition, room and board, training, books and supplies costs.

It also can cover post-secondary education expenses in tuition for most forms of K-12 education. Many can agree that a 529 plan is one of the best ways for you to financially prepare for your child’s college years.

A unique feature is being able to change the beneficiary of the account. If the beneficiary decided not to go to college or does not end up in need of all the funds in the account, then the funds can be transferred to a sibling or even to yourself.

Since these accounts are free of rules when you need to use them by (as of right now), you can even hold on to the plan for your grandchildren or yourself (if planning to go to college). When you simply need to take the money out for a non-educational purpose, you would likely have to pay income taxes along with a 10 percent tax penalty on earnings from the account.

You may still have to pay income tax on your withdrawal’s earnings portion, though this can often be calculated on the basis of the beneficiary’s rate, which is often lower than the savers.


Recent Posts

See All