COLLEGE SAVINGS 101

For grandparents

What happens if I have money in a 529 account for a grandchild who later decides to not attend college?

One option you would have is to change the beneficiary to another member of the family. That could be the current beneficiarys brother or sister. It could also be the beneficiarys cousin. You could even move the beneficiary up or down the family tree, naming the beneficiarys child, parent, or even yourself as replacement beneficiary.

Another option you have is to take the money back out of the 529 plan for yourself. However, you probably wont want to do this unless you have a real need for the funds. Any earnings growth in the account will be taxable to you at your ordinary income rate plus a 10-percent penalty rate. The fact that the account beneficiary can be changed as many times as you want means that any excess funds in your 529 plan can remain there to be passed down from generation to generation (check to see if your 529 plan has a restriction on how long the account can stay openmany do not).

 

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