529 Changing Beneficiary

[Anonymous]

If DD has extra money left over from 529 (for whatever reason), can we eventually switch the beneficiary to her future kids without the 10% penalty? I am seeing that switching from sibling to sibling does not incur a penalty, but I thought I read that there is a penalty to shift from one generation to another (like child to grandchild). Wondering if this is true?

[Anonymous]

I can't imagine why you would have to pay penalty for that. Give them a call. Probably quickest and most accurate way to get a response.

[Anonymous]

We started my daughter’s 529 before she was born and I was the original beneficiary. There was no penalty for making the switch.

[Anonymous]

Here is the answer OP:

https://support.wealthfront.com/hc/en-us/articles/214676923-Can-I-change-the-beneficiary-of-my-529-account-Who-is-eligible-to-be-a-new-beneficiary-#:~:text=Any%20change%20of%20the%20beneficiary,10%25%20federal%20tax%20on%20earnings.

Any change of the beneficiary to a person who is not an eligible member of the family of the current beneficiary is treated as a non-qualified withdrawal subject to applicable federal and state income taxes, as well as the additional 10% federal tax on earnings.

Eligible members of the family include the beneficiary’s:

Natural or legally adopted children
Parents or ancestors of parents
Siblings or stepsiblings
Stepchildren
Stepparents
Nieces or nephews
Aunts or uncles
The spouse of any of the individuals listed above
The spouse of the beneficiary
First cousins

[Anonymous]

Anonymous wrote:Here is the answer OP:

https://support.wealthfront.com/hc/en-us/articles/214676923-Can-I-change-the-beneficiary-of-my-529-account-Who-is-eligible-to-be-a-new-beneficiary-#:~:text=Any%20change%20of%20the%20beneficiary,10%25%20federal%20tax%20on%20earnings.

Any change of the beneficiary to a person who is not an eligible member of the family of the current beneficiary is treated as a non-qualified withdrawal subject to applicable federal and state income taxes, as well as the additional 10% federal tax on earnings.

Eligible members of the family include the beneficiary’s:

Natural or legally adopted children
Parents or ancestors of parents
Siblings or stepsiblings
Stepchildren
Stepparents
Nieces or nephews
Aunts or uncles
The spouse of any of the individuals listed above
The spouse of the beneficiary
First cousins

Thank you!

[Anonymous]

You can also roll over up to about $3K per year into DD's retirement IRA. We won't have too much left yet I think we'll do this to help DD get a start on retirement savings.

Be sure to check the amounts and associated rules.

[Anonymous]

Based on the above links, there would be a 10% penalty and normal fed and state tax liability if you transfer the 529 from a child to a grandchild.

[Anonymous]

Anonymous wrote:Based on the above links, there would be a 10% penalty and normal fed and state tax liability if you transfer the 529 from a child to a grandchild.

Google Multigenerational 529, aka Dynasty 529 Plan.

[Anonymous]

Anonymous wrote:Here is the answer OP:

https://support.wealthfront.com/hc/en-us/articles/214676923-Can-I-change-the-beneficiary-of-my-529-account-Who-is-eligible-to-be-a-new-beneficiary-#:~:text=Any%20change%20of%20the%20beneficiary,10%25%20federal%20tax%20on%20earnings.

Any change of the beneficiary to a person who is not an eligible member of the family of the current beneficiary is treated as a non-qualified withdrawal subject to applicable federal and state income taxes, as well as the additional 10% federal tax on earnings.

Eligible members of the family include the beneficiary’s:

Natural or legally adopted children
Parents or ancestors of parents
Siblings or stepsiblings
Stepchildren
Stepparents
Nieces or nephews
Aunts or uncles
The spouse of any of the individuals listed above
The spouse of the beneficiary
First cousins

Can't you just transfer ownership to the parents then they can make their kids the beneficiaries?

[Anonymous]

Anonymous wrote:Based on the above links, there would be a 10% penalty and normal fed and state tax liability if you transfer the 529 from a child to a grandchild.

I thought so too the first time I read it, but the list of family members are in relation to the original beneficiary, so a child of the beneficiary would be OP's grandchild.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Here is the answer OP:

https://support.wealthfront.com/hc/en-us/articles/214676923-Can-I-change-the-beneficiary-of-my-529-account-Who-is-eligible-to-be-a-new-beneficiary-#:~:text=Any%20change%20of%20the%20beneficiary,10%25%20federal%20tax%20on%20earnings.

Any change of the beneficiary to a person who is not an eligible member of the family of the current beneficiary is treated as a non-qualified withdrawal subject to applicable federal and state income taxes, as well as the additional 10% federal tax on earnings.

Eligible members of the family include the beneficiary’s:

Natural or legally adopted children
Parents or ancestors of parents
Siblings or stepsiblings
Stepchildren
Stepparents
Nieces or nephews
Aunts or uncles
The spouse of any of the individuals listed above
The spouse of the beneficiary
First cousins

Can't you just transfer ownership to the parents then they can make their kids the beneficiaries?

Same question.. Say I have $50K remaining in my child's 529 and transfer it to their name so they can manage it any way they deem fit. They in turn make their child the nominee. Is that OK? Gift tax was considered during the annual contributions so this transfer should not have any gift tax consequences, right? I know it's under the lifetime limits, etc. but do i still need to file paperwork if i do this?