Tax consequences of liquidating 529

They also have very high contribution limits, often feature income tax deductions, and you can use any state plan to pay for any college – you are not limited to colleges within the state that the plan is sponsored.

Yet the challenge is that if not done carefully, using a grandparent-owned 529 plan or gifting assets from a grandparent to grandchild for college can adversely impact the grandchild’s own ability to qualify for financial aid, implicitly diminishing the value of the gift.If you use it for purposes other than college or post-secondary expenses, you must pay a 10% penalty on earnings in the investment – not principal contributions that were made, just growth.While that is generally a penalty you want to avoid, the truth is, if you were to receive positive average returns over the life of the plan, it is possible that there would still be significant growth available for withdrawal even after paying the 10% penalty.A 529 plan is established by one adult sponsor known as a “donor,” who is the owner. Typically, one spouse, or one grandparent, will be the donor of the plan and will designate one child as a beneficiary.You may change a beneficiary at any time, without restriction, which is useful if one child is offered a scholarship.

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