For example, when a 529 plan beneficiary is changed from a grandparent to a grandchild the grandparent’s estate would be subject to the GST. Families who use a single 529 plan to save for more than one child’s college will have to change the beneficiary once they are ready to pay for the next sibling’s college expenses.ĭistributions used to pay for college expenses for anyone other than the designated beneficiary will be considered non-qualified, and subject to income tax and a 10% penalty on the earnings portion and possible recapture of state income tax benefits.įamilies may also be able to avoid the twice per calendar limit on 529 plan investment changes and the one rollover per 12-month period limitations when the request is submitted with a beneficiary change request.Ĭhanging a 529 plan beneficiary may result in generation-skipping transfer tax (GST) when the new beneficiary is two or more generations below the current beneficiary. For example, tax-free 529 plan distributions may be used to pay for qualified education expenses for one child only. There are several reasons why a 529 plan account owner may want to change the beneficiary. Beneficiary changes are not treated as a distribution when the new beneficiary is a member of the family of the current beneficiary. However, a 529 plan account owner may change the beneficiary by completing a form on the 529 plan’s website. 529 plan beneficiary – Member of the familyĥ29 plans are designed to save for future education expenses for a single designated beneficiary. 529 plans accept gift contributions from any third party, regardless of whether the gift giver is a member of the family. It is still possible to help friends and other non-family members pay for college. To make this change, the 529 plan account owner would change the beneficiary to the stepfather or stepmother and then subsequently change the beneficiary to be their mother or father or any ancestor (assuming they are still living). Father or mother or ancestor of either, stepmother, stepfatherĪ 529 plan beneficiary could also be changed to an ancestor of a stepfather or stepmother, even though they are not listed.Son, daughter, stepchild, foster child, adopted child or a descendant.Who is a member of the family?Īccording to the IRS, a member of a 529 plan beneficiary’s family includes the beneficiary’s: It’s important to understand who qualifies as a member of the beneficiary’s family before you change your 529 plan beneficiary. The IRS provides a broad definition of family member, which includes the beneficiary’s blood relatives and relatives by marriage and adoption. A 529 plan account owner may change the beneficiary at any time without tax consequences when the new beneficiary is a family member of the current beneficiary.
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