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So my son is planning to take a semester abroad in January. After reviewing the credentials of the visiting European school, it appears that it is not a qualified college for 529 withdrawals. Looking at the rules, it appears that in the case of a semester away, both the primary school and the visiting college need to be qualified institutions. Using 529 money for attendance at a nonqualified college would be subject to a 10% penalty and incur federal taxes on the money.
There is extra money in the account, because he received a half scholarship. Scholarship awards can be withdrawn without penalty from 529 accounts, but you are still required to pay taxes on the earnings.
What I am thinking of doing to avoid taxes and penalties is this: fund this semester out of my aftertax account, transfer the total sum thus funded from my son’s 529 account to his younger sister’s 529, and then forego future contributions I would otherwise have made to her account until the transferred amount is reached (instead using those funds to replenish my aftertax account).
Any thoughts or suggestions here? Am I missing something? Thanks in advance!
There is extra money in the account, because he received a half scholarship. Scholarship awards can be withdrawn without penalty from 529 accounts, but you are still required to pay taxes on the earnings.
What I am thinking of doing to avoid taxes and penalties is this: fund this semester out of my aftertax account, transfer the total sum thus funded from my son’s 529 account to his younger sister’s 529, and then forego future contributions I would otherwise have made to her account until the transferred amount is reached (instead using those funds to replenish my aftertax account).
Any thoughts or suggestions here? Am I missing something? Thanks in advance!
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