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Can You Transfer A 529 Plan From Child To Grandchild?

Financial planning is not only about securing our own future but also about creating a lasting legacy for generations to come. One avenue many parents consider for this purpose is helping with college expenses, and a popular way to save is using a 529 plan. If you are a parent, however, you may wonder what would happen to that college savings plan if your child doesn’t attend college. Can you transfer a 529 plan from a child to a grandchild or another child? When it comes to transferring a 529 plan to someone else, complexities may arise. In this article, we’ll delve into the nuances of this financial instrument, exploring its features, limitations, and potential benefits for intergenerational wealth transfer.


The Short Answer To: Can You Transfer A 529 Plan From Child to Grandchild?

The short answer is yes, it is possible to transfer a 529 plan to a grandchild. However, the implications are more complex than one might assume. The flexibility of a 529 plan allows for changes in beneficiaries, but it’s crucial to navigate this terrain with a clear understanding of the rules and regulations.

To Whom Can You Transfer A 529 Plan?

529 plans are designed to facilitate education savings, primarily for the account beneficiary. While the primary purpose is to fund the education expenses of the account owner, such as a child or grandchild, it’s not limited to just direct descendants. You can transfer a 529 plan to a sibling, cousin, or even yourself if you decide to pursue higher education later in life.

However, when transferring to a grandchild, there are additional considerations. It’s essential to be aware of potential tax implications, including the generation-skipping tax.

Clarify For Me What A 529 Plan Is?

Before diving into transferring a 529 plan, let’s briefly understand what this investment tool entails. A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education costs. These plans are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code.

There are two main types of 529 plans: prepaid tuition plans and education savings plans. Prepaid tuition plans allow for the prepayment of tuition at today’s rates, while education savings plans invest contributions in mutual funds or similar investments.


Related: What is the best college savings plan?


If You Withdraw The Money Not For Education, What Are The Consequences?

One of the primary advantages of a 529 plan is the tax-free withdrawal of funds for qualified education expenses. However, if you withdraw money for non-educational purposes, there are consequences. Non-qualified withdrawals are subject to federal and state income tax, and an additional 10% penalty on earnings may apply.

When transferring a 529 plan to a grandchild, it’s crucial to communicate the intended use of the funds. There will be financial implications if the grandchild decides not to pursue higher education or if the funds are used for non-qualified expenses. Clear communication and understanding of the potential consequences are essential to avoid surprises down the road.

Tax Considerations When Transferring A 529 Plan To A Grandchild

When transferring a 529 plan to a grandchild, it’s essential to delve deeper into the tax implications of such a transfer. The good news is that often changing the beneficiary on a 529 plan has no adverse tax consequences. However, there are circumstances when the gift tax or generation-skipping tax would apply. Let’s look at an example.

“For example, if the new beneficiary is one generation below the old beneficiary (e.g., a parent changes the account beneficiary from a child to a grandchild), the transaction is treated as a taxable gift from the old beneficiary to the new. In other words, the child would be deemed to have made a gift to the grandchild. Generation-skipping rules apply when the new beneficiary is two or more generations below the old beneficiary (e.g., a parent changes the beneficiary from a child to a great-grandchild).” (CliftonLarsonAllen, 2017)

In the example above, the child may be subject to gift tax when a parent changes the beneficiary from a child to a grandchild. However, there are strategies to minimize the tax impact.

One effective strategy is to utilize the annual gift tax exclusion. In 2024, the annual exclusion allows an individual to gift up to $18,000 per beneficiary without triggering the gift tax. Married couples can combine their exclusions, allowing for a joint gift of $36,000 per beneficiary. In addition, 529 plans allow you to front-load five years’ worth of gift tax exclusion, i.e., contributions. Utilizing this exclusion can help minimize the immediate tax consequences of transferring a 529 plan from child to grandchild.

Learn how 529 plans owned by grandparents can affect financial aid.

Understanding Generation-Skipping Tax With A 529 Plan

One of the key considerations when transferring a 529 plan to a grandchild is the generation-skipping tax (GST). The GST is a federal tax designed to prevent individuals from avoiding the estate tax by passing assets to beneficiaries two or more generations below the donor (e.g., grandchildren). While there are exemptions, it’s crucial to know the potential tax implications when transferring a 529 plan to a grandchild.

In the context of a 529 plan, contributions to the plan are considered gifts. If these contributions exceed the annual gift tax exclusion, they may be subject to the GST if you contribute to a beneficiary two or more generations below you. Proper planning and consultation with a financial advisor can help navigate these tax implications and potentially mitigate any adverse effects. Dive deeper into the generation-skipping tax.

What Else Can A 529 Plan Be Used For Outside Of Higher Education?

While the primary purpose of a 529 plan is to fund higher education expenses, there are other ways the funds can be utilized. Recent legislative changes have expanded the usage of 529 plans to include K-12 education expenses. This means that funds can be withdrawn tax-free to cover tuition and other qualified expenses at private, public, or religious schools for elementary and secondary education. This may vary by state. For example, in Colorado, the 529 plan funds can still only be used for higher education.

Additionally, keep in mind that 529 plans can cover trade schools. Culinary school, mechanic certificate, electrician, or plumbing schooling are other ways that 529 plan savings can be used, and withdrawals can be tax-free. This broader scope provides more flexibility in utilizing the funds for educational purposes beyond traditional college or university expenses.


Related: Financial Planning For Young Families: Three Areas To Focus On


How Do You Switch Beneficiaries On A 529 Plan?

Transferring a 529 plan to a different beneficiary is pretty straightforward. The account owner typically has the authority to change the beneficiary at any time, and the new beneficiary must be an eligible family member of the current beneficiary.

It’s essential to check the specific rules of the 529 plan, as there may be variations in the process among different states. Additionally, proper documentation and communication are crucial to ensure a seamless transition of the plan to the new beneficiary.

You will want to get in touch with the custodian of the 529 plan and ask for paperwork to change the beneficiary. More often than not, you can complete the process online. Before you get started, it is a good idea to have the new beneficiaries’ information, such as name, date of birth, and social security.

Strategies For Maximizing the Benefits Of A 529 Plan Transfer

When transferring a 529 plan to a grandchild, thoughtful planning can maximize the benefits for both the account owner and the grandchild. One strategy is to leverage the tax-free growth of the 529 plan over time. By initiating the transfer well before the grandchild’s anticipated education expenses, the funds have more time to grow and accumulate earnings.

Considerations should also be given to the investment strategy within the 529 plan. The account owner may choose to adjust the asset allocation to align with the grandchild’s time horizon for education. This may involve a more aggressive investment approach in the early years, gradually transitioning to a more conservative strategy as the grandchild approaches the age when the funds will be needed.


In summary, can you transfer a 529 plan from child to grandchild? Yes. While transferring a 529 plan from a child to a grandchild is possible, it requires careful consideration of various factors. Understanding the rules and potential tax implications, especially regarding the gift tax, is wise. Effective communication and documentation are key when switching beneficiaries, and being aware of the expanded usage of 529 plans adds another layer of flexibility to this powerful financial tool.

As with any financial decision, consulting with a knowledgeable financial advisor can provide personalized guidance tailored to your specific situation, ensuring that your intentions for intergenerational wealth transfer are realized with maximum efficiency and minimal complications. BlackBird Finance specializes in helping families succeed financially; if you are ready to start bouncing financial strategies with an expert, contact us for a 30-minute discovery session or sign up for our newsletter.  



CliftonLarsonAllen. (2017, July 5). Income, estate, and gift tax considerations of 529 college savings plans. Income, Estate, and Gift Tax Considerations of 529 College Savings Plans. https://www.claconnect.com/en/resources/articles/2017/income-estate-and-gift-tax-considerations-of-529-college-savings-plans 

Levine, J. (2020, August 29). Dynasty 529 plan for Multigenerational College expenses. Nerd’s Eye View | Kitces.com. https://www.kitces.com/blog/using-a-family-dynasty-529-plan-for-multigenerational-college-planning/