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To whom can I transfer the money in a 529 plan?

January 07, 2019

A 529 plan, which includes both 529 college savings plan and 529 prepaid plans, allow individuals to contribute money to a tax-advantaged investment account for the beneficiary to use for higher education expenses. While contributions are made with after-tax dollars, the account accrues tax-free earnings that can be used on qualified higher education expenses including tuition, books, room and board, computers, and school equipment, depending on your plan.

Transferring Money to an Eligible Relative

What many people don’t know about 529 plans is that if the beneficiary chooses not to attend college, you don’t automatically lose the money in the account. Most 529 plans allow you to change the beneficiary or transfer the money in the account to an eligible relative. Eligible relatives include immediate family, extended family, stepfamily, and even in-laws. In many cases, spouses of these relatives are also eligible to use the funds.

It is important to note, that eligible relatives are members of the beneficiary’s family, not the account holder. For example, if you open a 529 college savings plan for your godson, you cannot transfer the plan to your niece unless she is an eligible relative of your godson. In most cases, the relative would need to be an eligible relative of the beneficiary.

Other Eligible Individuals

In some instances, you can even transfer the money in the account to a guardian or other housemate. If the beneficiary of the account regularly lives maintains residency with an individual for most of the tax year, that person may be eligible to receive funding. Example of eligible relatives may include a foster parent, adoptive parent, legal guardian, or live-in partner.

Eligible Relatives




Immediate Family


Spouse, child, mother, father, brother, sister



Extended Family


Grandfather, grandmother, aunt, uncle, niece, nephew, granddaughter, grandson, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law





Stepmother, stepfather, stepbrother, stepsister, stepson, stepdaughter



Other relatives


First cousin



Legal guardian/Housemate



What if the person is not an eligible relative?

There may be cases where you would like to change a beneficiary or transfer funds to someone who is not an eligible relative. For example, your only child has recently graduated college and has $100,000 remaining in their 529 college savings plan. There are no other eligible relatives that plan to attend college. However, your best friend’s son is in his sophomore year of college, and you would like to transfer the money to him. Unfortunately, plans can only be transferred to eligible relatives. In this case, you could withdraw the remaining funds, but you would incur a 10% penalty, plus federal and state taxes on a portion of the earnings accrued in the account.

ABLE Accounts

If no eligible relatives are planning to attend college, but a member of your family is disabled, you may be able to transfer the remaining funds in the account to a relative with a disability. Money in 529 Accounts can be transferred to Achieving A Better Life Experience (ABLE) accounts, which are tax-advantaged accounts for individuals with disabilities. Money in ABLE accounts goes toward living and education expenses. If an eligible family member has a disability, consider opening an ABLE account and transferring funds.

Professional Development and Graduate Degrees

Since money in the 529 account does not expire, another option is to save the money for professional development or a graduate degree. Even if the beneficiary does not plan to earn another degree, at some point the money in the 529 account may be useful for an employee development program. Also, another relative may decide to pursue a degree at a later time, at which time the funds can be transferred.

Grandchildren and Children of the Beneficiary

Some parents decide to save the money in a 529 account for the beneficiary’s children. As soon as a baby has a social security number, the child can become the beneficiary of a 529 account. Saving money in a 529 is an excellent way to save for future college expenses, as the earnings will have several years to grow. However, when transferring a 529 plan from a grandparent to a grandchild, the account could be subject to a “generation-skipping” tax (see more below).

Other Considerations

529 Plan Restrictions

Some 529 plans have age restrictions for changing the beneficiary. It is common for 529 prepaid plans to have age restrictions. Also, if you are transferring money money between 529 plans in different states, there may be restrictions or penalties. For example, most plans require money to be deposited into an account within a certain amount of days before it is considered a withdrawal and subject to taxes.

Generation Skipping Tax

If the beneficiary is in a different generation than an eligible family member and you would like to transfer the account, the money in the 529 plan may be subject to a generation-skipping tax. For example, if a grandfather changes the beneficiary of a 529 account from himself to his grandson, the account would be subject to an additional tax. This policy is to prevent individuals from trying to reduce or eliminate estate tax. Check with your tax professional to determine if changing the beneficiary may result in an additional tax.

A Final Word on Transferring Money to an Eligible Relative in a 529 Plan

In addition to the 529 plan, other accounts, such as the Coverdell ESA allow parents to change the beneficiary to an eligible relative. If you want to transfer money in a 529 account, the best thing to do is to transfer it to an eligible relative. If an eligible relative is not planning to use the money, you can leave the account open in the beneficiary’s name until you have another option. The beneficiary of a 529 plan can be changed at a time in the future or when the beneficiary has a child of their own.