My niece is now in college and needs access to the 529 account I set up for her (we’re both in California, and the 529 is also through California). There’s about $20k in the account, and I’d ideally like to give her full access or control over the funds. She’s a few years into her education and fully capable of managing her finances, so I have no concerns about her handling the money responsibly.
However, I want to keep taxes and potential financial aid impacts in mind. What’s the best way to transfer control or manage the 529 to fund her education without creating unnecessary complications?
It’s better to keep the account in your name. If you transfer ownership, the 529 may count as her asset, which can negatively impact her financial aid. You can request payments directly to the school or reimburse her for qualified expenses.
Contact the 529 plan administrator to have payments sent directly to her school. You’ll need her student ID and billing info. This avoids creating a taxable event and simplifies things.
Keep the account in your name and work with her to ensure withdrawals are used for qualified expenses. My nieces and nephews have done everything from buying laptops to saving for grad school using 529 funds.
If you have 529s for other nieces and nephews, consider balancing the amounts so everyone gets a fair share. Large discrepancies can lead to family tensions down the line.
Reach out to the fund manager and get their advice on the best way to handle withdrawals while avoiding any tax issues. Keep your niece informed about the reasoning behind the approach.