Question 529 and scholarship.... (1 Viewer)

[NewlyRetired]

My adult daughter has a fairly substantial amount of money in a 529 plan that she is the beneficiary of.

She got a scholarship to go to college that paid for the vast majority of the costs which is why there is a hefty chunk sitting in a 529 plan.

She does not plan to go to grad school. We do not have any other children to transfer it to.

We have always told her that since she earned the scholarship, all of the money in the 529 would be hers.

We know we do not have to pay a penalty upon withdrawal, but we do know we have to pay income taxes.

Ok, now with that preamble, here is my question:

When we start withdrawing the money from the 529, can we have the check made out to her name, since she is the beneficiary, or does it have to be made out in our name, since we are the owners?

 

[CletiusMaximus]

You'll probably get some good advice here, but I would still seek a professional opinion on this. One thing to confirm - are you sure she maxed out all qualified expenses like room/board, computers and other equipment used for college, internet access, etc.? I don't know if there is a deadline to claim such expenses for prior years, but would want to make sure you took every eligible expense from the tax-advantaged funds before distributing.

 

[NewlyRetired]

You'll probably get some good advice here, but I would still seek a professional opinion on this. One thing to confirm - are you sure she maxed out all qualified expenses like room/board, computers and other equipment used for college, internet access, etc.? I don't know if there is a deadline to claim such expenses for prior years, but would want to make sure you took every eligible expense from the tax-advantaged funds before distributing.

yes, we took out to cover everything that was allowed. My wife was very diligent on this stuff every year cataloging it.

 

[jobarules]

We know we do not have to pay a penalty upon withdrawal

I thought there was a penalty unless used for school related expenses.

 

[NewlyRetired]

We know we do not have to pay a penalty upon withdrawal

I thought there was a penalty unless used for school related expenses.

A scholarship is one of the few ways you get around it (death is another).

 

[jobarules]

We know we do not have to pay a penalty upon withdrawal

I thought there was a penalty unless used for school related expenses.

A scholarship is one of the few ways you get around it (death is another).

Oh good to know.

 

[belljr]

You will only have to pay taxes on earnings not on money deposited.

You could leave it there for a bit.

I think it depends on the account but there is a form if you want the distribution to go to her. I am no expert at all

 

[-fish-]

You can have the funds disbursed to you or to her directly.

 

[gruecd]

Check out the new Secure 2.0 rule about moving some of it to a Roth IRA for her.

 

[gruecd]

There's no deadline for distribution. Will your daughter eventually have children? Maybe you just leave it in the account and ultimately change the beneficiary to her future child(ren)?

 

[STEADYMOBBIN 22]

Nothing to add except...Congrats!

 

[Galileo]

There's no deadline for distribution. Will your daughter eventually have children? Maybe you just leave it in the account and ultimately change the beneficiary to her future child(ren)?

This was my first thought...unless she wants/needs those funds to get a stable beginning to post college life.