Dear Dr. Don,
A few years ago, I inherited some money. I put a large chunk of what I received into a 529 plan and an education savings account for my son. My thinking at the time was that I wasn’t going to be inheriting any other money anytime soon, and I wanted to make sure I had money for my son’s education.
My father recently passed away and left my son money. I had to open a Uniform Gift to Minors Act account for him. I am the custodian. Is there any way (without paying penalties) I can recoup some of the money I placed in the 529?
If I thought my father was going to leave my son as much money as he did, I never would have put as much in the 529. I could use some of the money to fix up my house.
I hope Bankrate’s College Money Guru, Joe Hurley, will forgive me for walking his beat. His Web site,
SavingforCollege.com, is my favorite for learning details about Section 529 college savings plans.
Here’s what the site
has to say about the penalty associated with withdrawing funds from your son’s 529 plan:
You can change the beneficiary to another qualifying family member at any time in order to keep the account going and avoid (or at least delay) taking nonqualified withdrawals when the original beneficiary doesn’t need those funds.”
There are some additional tax implications that Joe discusses
in a separate FAQ:
I’m assuming that you own the account and that your son is the account beneficiary. The tax implications for closing down the Coverdell Education Savings Account, or CESA, are different. See the SavingforCollege.com Web page ”
Control of the ESA” for more information. If you’re not sure, contact your tax professional.
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