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What happens if the 529 beneficiary drops out of school or reduces their full-time status?

You or the beneficiary may receive a refund from the eligible educational institution. You may re-contribute the refund to your 529 account for that beneficiary and avoid any tax. The re-contribution must be made within 60 days of receiving the refund to avoid the taxes and penalties associated with a non-qualified withdrawal.

If the beneficiary attends an eligible educational institution at least half-time, you can still use the 529 account to pay for certain room and board expenses.

You can also change the beneficiary without adverse federal income tax consequences, as long as the new beneficiary is an eligible member of the family of the current beneficiary.

You can always make a non-qualified withdrawal. The earnings portion of a non-qualified withdrawal is subject to federal and any applicable state income taxes as well as an additional 10% federal tax.

 

 

 

 

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