It looks like I'm going to have a remaining balance after my two kids get done with their undergraduate degrees. I wondered about my options to close out the accounts with minimal taxes and penalties.
- DD1 finishing up a degree at a private university this year, job offer accepted.
- DD1 529 account going to be empty after the spring tuition bill gets paid.
- DD1 will have 15K in loans at the end.
- DD1 will have received about 85K in discounts over the 4 years (lableled as 'scolarship' on the tuition bill, but I call 'em discounts).
- DD2 just starting out at a public university.
- DD2 529 has $125K.
- DD2 expenses 1st year: 14K, remaining 3 years: $19K*3 ($71K for 4 years).
- DD2 will have 5K in loans at the end.
- DD2 will have received no discounts/scholarships.
My kids came up with this idea idenpendently: After DD1 starts work next July, change the beneficiary on DD2's account to DD1, pay off the loans, then switch the beneficiary back to DD2. The plan was that DD2 will "tote the note" for her older sister
. Or maybe there's a way to do a 529 to 529 transfer that doesn't have tax consequences?
Anyway, those numbers show $34K left in DD2's 529 after the undergraduate degree (125-71-15-5=$34K). I told the girls that that the remainder of their 529 account was theirs after they graduated college (an incentive to go to a state school and/or be conservative).
So although I could keep the account, changing the beneficiary on the account to a grandchild (if one ever happens), or to a neice or nephew or whatever, and gift the equivalent cash to DD2, I figured it would be better to just get the money out, giving it to DD2, and close out the account.
A thread I read just today (about the guy with 5 or 6MM net worth) had a set of side details about the ability to getting money out of 529's (without penalty, but counting gains as income) up to the amount of the scholarships received. So it looks like that might work for me. Can I go back and claim all of those scholarships received (starting in 2010) at a later point in time (after DD2 wraps up her undergraduate degree)? So in 2017, I guess I'd change the beneficiary to DD1, pull all of the money out and somehow document that there was scholarships received all those years ago?