PFwise.com
Search
  • Home
  • Blog
  • Tools
  • Know-how
    • Insurance 101
    • Annuity 101
    • College Planning
    • Real Estate
    • Retirement Planning
    • Smart Investment
    • Stock Ideas
    • Tax Planning
  • About Us
  • 中文
  • Resources
    • Personal Finance Reading List
    • Financial Aid Resources
    • Personal Finance Calendar
    • Retirement Planning Calendar
    • ETF list
    • Financial Glossary
  • Newsletters Archive

What Happens to 529 Fund If My Child Receives a Scholarship?

9/1/2013

0 Comments

 
Picture
Q. Can I get the money out of the 529 without penalty if my child receives scholarship from a college?

A. When you take money out of a 529, earnings and contributions are withdrawn proportionately.  Usually, you'd owe income taxes and a 10% penalty on earnings that aren't used for qualified education expenses.  However, there are 3 options you can consider:

1. You can withdraw money from a 529 up to the amount of a tax-free scholarship without paying the 10% penalty. 

You still have to pay income taxes on earnings, but contributions can always be withdrawn tax- and penalty-fee. See whether your 529 administrator will let your daughter take the withdrawal herself, listing her name (rather than yours) on the Form 1099 that reports the withdrawal to the IRS.  She would then be responsible for paying the taxes, but that can help lower the tax bill because she’s likely to be in a lower bracket than you are.

2. Use the 529 money for other qualified expenses and avoid some of those taxes.
In addition to tuition, you can use 529 money tax-free for room and board, books and mandatory fees.  And if your child ends up going to graduate school, she or she can use the money for tuition, room, board, books and mandatory fees there, too (there’s no age limit for using the money).

3. Switch the beneficiary of the 529 plan to another family member who plans to attend college or graduate school.  

That could be yourself, your spouse, or any other child or grandchild.  You can even make one of your child's first cousins or another relative a beneficiary



0 Comments



Leave a Reply.

    Author

    PFwise's goal is to help ordinary people make wise personal finance decisions.

    Archives

    September 2022
    August 2022
    July 2022
    June 2022
    May 2022
    April 2022
    March 2022
    February 2022
    January 2022
    December 2021
    November 2021
    October 2021
    September 2021
    August 2021
    July 2021
    June 2021
    May 2021
    April 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    June 2020
    May 2020
    April 2020
    March 2020
    February 2020
    January 2020
    December 2019
    November 2019
    October 2019
    September 2019
    August 2019
    July 2019
    June 2019
    May 2019
    April 2019
    March 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    January 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017
    July 2017
    June 2017
    May 2017
    April 2017
    March 2017
    February 2017
    January 2017
    December 2016
    November 2016
    October 2016
    September 2016
    August 2016
    July 2016
    June 2016
    May 2016
    April 2016
    March 2016
    February 2016
    January 2016
    December 2015
    November 2015
    October 2015
    September 2015
    August 2015
    July 2015
    June 2015
    May 2015
    April 2015
    March 2015
    February 2015
    January 2015
    December 2014
    November 2014
    October 2014
    September 2014
    August 2014
    July 2014
    June 2014
    May 2014
    April 2014
    March 2014
    February 2014
    January 2014
    December 2013
    November 2013
    October 2013
    September 2013
    August 2013
    July 2013
    June 2013
    May 2013

    Categories

    All
    Annuity
    Book Reviews
    College Finance
    Finance In Formula
    Financial Scams
    For Entrepreneurs
    Healthcare
    Insurance
    Investment
    Miscellaneous
    Real Estate
    Retirement
    Savings
    Savings Ideas
    Stock-ideas
    Tax
    Tax-related

    RSS Feed

Powered by Create your own unique website with customizable templates.