<p>Your child’s school will issue a 1098 T to you. This form list the allowable expenses AND the amount of any scholarships received. It’s quite easy to figure out if any of this is taxable. If your kid’s scholarship is MORE than the allowed expenses (tuition/fees), it will be taxed…and you will not receive a tuition tax credit (or whatever it’s called these days).</p>
<p>Aren’t you allowed to transfer 529 funds from an account for the benefit of one person to an account for the benefit of another person with no penalty? In other words, if you have one child with a full scholarship, you can transfer funds from his 529 account to the 529 account of a sibling who does not have a scholarship. Would this help you, axw? It is not a gift from one sibling to another, but just a transfer from one 529 to another, and my understanding is that it is not a taxable transfer nor are penalties incurred.</p>
<p>This was my understanding of what our financial advisor said, but it sure is possible that I got it wrong!</p>
<p>^^^Barfly, I heard the same from my financial advisor. 529’s are custodial accounts, so the money is in the parents’ names as well as the child’s and can be transferred between the accounts of different children.</p>
<p>Can’t you keep the 529 for future grandchildren as well?</p>
<p>“Aren’t you allowed to transfer 529 funds from an account for the benefit of one person to an account for the benefit of another person with no penalty? In other words, if you have one child with a full scholarship, you can transfer funds from his 529 account to the 529 account of a sibling who does not have a scholarship. Would this help you, axw? It is not a gift from one sibling to another, but just a transfer from one 529 to another, and my understanding is that it is not a taxable transfer nor are penalties incurred.”</p>
<p>That is exactly what I was suggesting.</p>
<p>Maybe this varies by state, but it is my understanding that 529’s are held in the name of the custodian who funds the 529 (usually the parents) and for the benefit of a child. The child beneficiary has no claim to the funds and the parent can name a different beneficiary (I think related to the custodian), including the custodian. With two children, I don’t think there is any question that the 529 can be used for the benefit of the non-scholarship child once the appropriate paperwork is done.</p>
<p>You can, but there are limits on how you move money around. I don’t know the details offhand but be careful because gifts above a certain amount are subject to tax.</p>
<p>Bigtrees - Maybe we cross-posted, but the designation of a new beneficiary of the 529 is not the recipient of a gift because the custodian is really the owner and he/she remains the same. Gift tax is not an issue. But, 529s have all sorts of rules regarding changes and I suspect that this kind of a change can only be done once a year.</p>
<p>Not according to the IRS. </p>
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<p>[529</a> Plans: Questions and Answers](<a href=“http://www.irs.gov/newsroom/article/0,,id=213043,00.html]529”>http://www.irs.gov/newsroom/article/0,,id=213043,00.html)</p>
<p>Another website says it more clearly (but is less trustworthy):</p>
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<p><a href=“http://www.529taxs.com/529gifttaxexclusion.html[/url]”>http://www.529taxs.com/529gifttaxexclusion.html</a></p>
<p>In any case, should your 529 be large enough that gift taxes may be a concern, please spend some time researching the issue, talking with the IRS or a CPA before changing the beneficiary. Don’t trust what you see here.</p>
<p>MDMom, yes, if you keep the 529 funds in a valid account for the benefit of one beneficiary, then, in the future, when you have a grandchild, you can transfer it to a 529 for that grandchild. That is my understanding. But every 529 has to have a named beneficiary. They can’t be set up for a future little person who doesn’t exist yet, such as setting one up before children/grandchildren are born. </p>
<p>Bigtrees, thanks for the handy links. Here is a helpful quote from one of them:</p>
<p>Q. Can I change the beneficiary of a 529 plan I have set up?</p>
<p>A. Yes. There are no tax consequences if you change the designated beneficiary to another member of the family. Also, any funds distributed from a 529 plan are not taxable if rolled over to another plan for the benefit of the same beneficiary or for the benefit of a member of the beneficiary’s family. So, for example, you can roll funds from the 529 for one of your children into a sibling’s plan without penalty.</p>
<p>Here’s another quote from another site:</p>
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<p>[Alabama</a> 529 | Compare Savings Plans](<a href=“Alabama 529 College Savings Plan - CollegeCounts 529”>Alabama 529 College Savings Plan - CollegeCounts 529)</p>
<p>It does look like changing beneficiarys from one kid to another kid doens’t have gift tax implications:</p>
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<p><a href=“http://www.retirementandestateplanning.com/law/chapter_22.htm[/url]”>http://www.retirementandestateplanning.com/law/chapter_22.htm</a></p>
<p>All I can say is be very careful (and consult a tax advisor) if you are at risk of contribution more than the annual limits to any child.</p>
<p>bigtrees: My kid’s highschool makes owning a laptop computer mandatory for all students. (If a family cannot afford one, there is a process for financial aid to get it.) Every student has to show up for six hours of computer training in August before starting 9th grade.</p>