Can I Change the Beneficiary of My 529 Plan/Account?
A reader writes in, asking:
“Can I create a 529 account, contribute to it with my daughter named as the beneficiary, and then change the beneficiary to another family member if we end up wanting to help fund somebody else’s education?”
The short answer is: it depends on who exactly the family member is, but probably yes.
Naturally, Code section 529 is where we’d find information about 529 plans.
There, we find that there are no income tax consequences to changing the beneficiary of a 529 account, provided that you change the beneficiary to somebody who is a “member of the family” of the existing beneficiary. Members of the family include:
- A child or a descendant of a child (i.e., a grandchild);
- A brother, sister, stepbrother, or stepsister;
- The father or mother, or an ancestor of either (i.e, grandparent);
- A stepfather or stepmother;
- A niece or nephew;
- An aunt or uncle;
- A son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law;
- An individual who, for the taxable year of the beneficiary, has the same principal place of abode as the beneficiary and is a member of the beneficiary’s household;
- The spouse of any of the above people;
- The spouse of the existing beneficiary; or
- A first cousin of the existing beneficiary.
Reminder: When going through this list, remember that these relationships are with regard to the existing beneficiary — not with regard to you or to any other person(s) contributing to the account.
If you change the beneficiary to somebody who is not in one of the above categories, the distribution will be taxable as income and will be subject to a 10% penalty.
Finally, section 529 also notes that the gift tax and generation-skipping transfer tax shall apply unless the new beneficiary is:
- In the same generation as (or a higher generation than) the existing beneficiary, and
- A member of the family of the existing beneficiary (as described above).