Thanks all - We are with Tomorrow Scholar in Wisconsin. It is age based I can’t find anything more aggressive within this fund. DD does have income from her summer job so we could move the money to her Roth and dictate how it is invested. IDK if it’s worth moving it to another 529 if we withdraw it and she doesn’t pursue a degree beyond a bachelors. She’s the youngest and already offered to put the money towards her brothers med school (if he gets in) but I think she gets the first option on it.
But you can move it out of age-based into any of the other funds with Tomorrow’s Scholar. They have about 20 different funds. as well as risk-based portfolios along with the age-based. If you change the beneficiary to the brother it can be used for his med school without taxes or penalty. I wouldn’t withdraw it first.
The federal tax rules for 529 withdrawals are covered by IRS Publication 970. I read Chapter 8, “Figuring the Taxable Portion of a Distribution” as suggesting it may be necessary in at least some situations to do the withdrawal for a scholarship in the same tax year. They calculate the taxable portion of the 529 withdrawals taken in a given tax year by subtracting the withdrawal amount from the adjusted qualified educational expenses for the tax year. In calculating adjusted QEE, you subtract the amount of any nontaxable scholarship. So if you wait too long and then take the whole scholarship amount in one year, you could end up with an unnecessary tax. I am not an accountant, so people should check this for themselves. The timing issues for 529s are tricky. I was only checking this point because I realized I made a mistake in not withdrawing funds from my daughter’s account last year. She is in an online high school and I wasn’t sure whether this falls under the new rules permitting withdrawals for pre-college tuition. By the time I realized it does, it was too late.
Definitely worth shifting the funds to her brother and having him reimburse her with the cash he would otherwise have paid for med school. They can split the tax savings to make it a win-win.