Can I Use One Child’s 529 for Another?

529 college savings plans offer a tax-advantaged way to save for education. These plans allow investments to grow tax-deferred, and qualified withdrawals are entirely tax-free at the federal level. The flexibility of these plans, particularly regarding beneficiary changes, is a common question.

Changing the Beneficiary

Yes, funds from one child’s 529 plan can generally be used for another family member, including another child. The process typically involves contacting the plan administrator and submitting a form to designate a new beneficiary.

For the change to be a tax-free event, the new beneficiary must qualify as a “member of the family” of the original beneficiary, as defined by the Internal Revenue Service (IRS). This broad definition includes individuals related by blood, marriage, or adoption. Qualifying relationships include:

The beneficiary’s spouse
Children (including stepchildren, adopted children, and foster children) and their descendants
Siblings and step-siblings
Parents and their ancestors (including stepparents)
In-laws (son-in-law, daughter-in-law, brother-in-law, sister-in-law, mother-in-law, father-in-law)
Aunts, uncles, nieces, nephews, and first cousins
The spouse of any of these individuals

If the new beneficiary does not meet this “member of the family” criteria, the change could be treated as a non-qualified distribution, potentially incurring taxes and penalties.

Qualified Expenses for the New Beneficiary

When a 529 plan beneficiary is changed, the funds can still be used for qualified higher education expenses (QHEE) for the newly designated individual. These expenses encompass a wide range of costs associated with enrollment or attendance at an eligible educational institution. Such institutions include virtually all accredited public, nonprofit, and proprietary postsecondary schools, vocational schools, and even some schools abroad.

Common examples of QHEE include tuition and fees, as well as room and board for students enrolled at least half-time. Funds can also cover the cost of books, supplies, and equipment necessary for coursework, along with computers, internet access, and related technology. Recent expansions allow 529 funds to be used for K-12 tuition, up to $10,000 per student annually. As of July 4, 2025, additional K-12 expenses like curricular materials, tutoring, and exam fees are also considered qualified, with the annual limit increasing to $20,000 in 2026. Additionally, 529 plans can be used for student loan repayment, with a lifetime limit of $10,000 per individual beneficiary, including principal and interest on qualified education loans.

Tax Considerations for Beneficiary Changes

Changing a 529 plan beneficiary to another eligible “member of the family” is generally a tax-free event and is not considered a taxable distribution or a gift. When qualified withdrawals are subsequently made by the new beneficiary for QHEE, these distributions remain tax-free at the federal level.

If the new beneficiary is not an eligible family member, the change could have gift tax implications. The annual gift tax exclusion for 2025 is $19,000 per recipient, or $38,000 if spouses elect to split gifts, as outlined in Internal Revenue Code Section 2503. Transfers exceeding this annual exclusion amount could potentially reduce the donor’s lifetime gift tax exemption.

While federal rules generally allow tax-free beneficiary changes among family members, state tax treatment can vary. Some states may have different rules regarding beneficiary changes, particularly if the funds are used for K-12 tuition or if the new beneficiary resides out-of-state. Certain states might impose income tax or recapture previous deductions if the beneficiary change does not align with their specific plan requirements. Consulting with a tax professional regarding state-specific rules is advisable to understand any potential recapture of prior state income tax deductions or other state-level tax impacts.