529 Plan Beneficiary Change
- Account owners can change the beneficiary of their 529 plan.
- Any family member of the original beneficiary can be the new beneficiary.
- Account owners maintain control of 529 plans until funds are withdrawn.
There are a lot of “what ifs” that go along with opening a 529 plan. What if the student doesn’t go to college? What if she gets a full scholarship? What if there is money left over after all college expenses are paid? Fortunately, the 529 plan is designed with flexibility in mind, so there is an easy way to solve all of these problems. For example, you may change the plan beneficiary to an eligible family member so funds can be used towards that family member’s qualified education expenses at eligible institutions instead.
529 Plan Rules: The Basics
Although the 529 plan was created through the federal tax code, states administer their own individual programs. Each state has at least one 529 option, and aside from observing the basic IRS regulations, plans vary in terms of fees, investment choices, maximum contribution amounts, etc.
States that offer a 529 college savings plan typically do not require participants to be residents, so you can select the best plan for your situation from any of the options nationwide. Funds set aside in a 529 plan can be used for qualified education expenses at any eligible education institution in the country, regardless of which state administers the account.
529 Plan Beneficiary Selection
U.S. citizens or resident aliens with a valid social security or tax identification number who are 18 years and older can open a 529 account for any other person or themselves. There is no age restriction for beneficiaries, and account owners can even name themselves as the beneficiary. The most important point is that the IRS allows the account owner to change the beneficiary to another family member without incurring taxes or penalties..
For the purposes of a 529 plan, family members include many generations, so a younger sibling of the original beneficiary is not the only choice. First cousins, aunts, and uncles qualify, in addition to parents and grandparents. In some cases, parents have used extra 529 funds to go back to school themselves, and there have even been instances of grandparents pursuing educational goals long after retirement, thanks to leftover 529 funds.
The process for changing your 529 plan account beneficiary is usually quite simple. Most plans have a beneficiary change form available online. If not, you usually can obtain a copy of your plan’s beneficiary change form with a quick call to the plan’s customer service number. Complete and submit the form, and the beneficiary update will be made promptly.
As the 529 plan account owner, you maintain control of the account until the money is withdrawn, so beneficiary-related decisions are yours to make for as long as you keep the account open. This feature gives you peace of mind knowing that any funds you set aside will be used as you intended.
Nothing in this article should be construed as tax advice, a solicitation or offer, or recommendation, to buy or sell any security. This article is not intended as investment advice, and Wealthfront does not represent in any manner that the circumstances described herein will result in any particular outcome. Financial advisory services are only provided to investors who become Wealthfront clients.
This article is not intended as tax advice, and Wealthfront does not represent in any manner that the outcomes described herein will result in any particular tax consequence. Prospective investors should confer with their personal tax advisors regarding the tax consequences based on their particular circumstances. Wealthfront assumes no responsibility for the tax consequences to any investor of any transaction. Investors and their personal tax advisors are responsible for how the transactions in an account are reported to the IRS or any other taxing authority.
For information on any 529 college savings plan contact the plan provider for details on the investment objectives, risks, charges, expenses, and other important information included in the Plan Description and Participation Agreement; read and consider it carefully before investing.
Please Note: Before investing in any 529 plan, you should consider whether you or the beneficiary’s home state offers a 529 plan that provides its taxpayers with favorable state tax and other benefits that are only available through investment in the home state’s 529 plan. You also should consult your financial, tax, or other advisor to learn more about how state-based benefits (or any limitations) would apply to your specific circumstances. You also may wish to contact directly your home state’s 529 plan(s), or any other 529 plan, to learn more about those plans’ features, benefits and limitations. Keep in mind that state-based benefits should be one of many appropriately weighted factors to be considered when making an investment decision.
Earnings on nonqualified withdrawals are subject to federal income tax and may be subject to a 10 percent federal tax penalty, as well as state and local income taxes. The availability of tax and other benefits may be contingent on meeting other requirements.