529 Plans: Eligibility
By Denise Appleby
Who Can Establish and Contribute to the 529 Plan?
Anyone can establish and contribute to a 529 plan on behalf of a designated beneficiary. This means that relatives, family, friends and even the designated beneficiary can establish the 529 plan for him- or herself. But the rules do vary. For instance, some 529 plans limit participation to residents of the state while others allow anyone to participate, regardless of the individual's state of residence. Individuals should check with the financial institution or the education institution providing the plan to determine the eligibility requirements for establishing an account under the plan.
Some 529 plans may have established enrollment periods before which new accounts must be opened.
Age and Income Requirements
Unlike the ESA, 529 plans do not have income restrictions. Some 529 plans - although there are very few - place age restrictions on designated beneficiaries. Individuals must check with the plan provider and the plan documents to determine whether there are any restrictions that apply to the 529 plan they want to establish for the designated beneficiary.
The investment options available under the plan may be determined by the age of the beneficiary, and are often automatically adjusted as the beneficiary's age moves from one range to another. For prepaid tuition programs, the cost per credit may be determined by the number of years that the designated beneficiary has left before he or she reaches a certain age- usually the age that students typically begin attending college.
Change in the Designated Beneficiary
Like the ESA, the 529 plan allows the designated beneficiary to be changed to a qualified family member who meets any age requirements as determined by the plan.
For the purpose of determining who can become a designated beneficiary of a 529 plan, a qualified family member includes the following:
- The designated beneficiary's spouse
- The designated beneficiary's son or daughter or descendant of the beneficiary's son or daughter
- The designated beneficiary's stepson or stepdaughter
- The designated beneficiary's brother, sister, stepbrother or stepsister
- The designated beneficiary's father or mother, or ancestor of either parent
- The designated beneficiary's stepfather or stepmother
- The designated beneficiary's niece or nephew
- The designated beneficiary's aunt or uncle
- The spouse of any individual listed above, including the beneficiary's son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law or sister-in-law
- Any individual for whom the home of the designated beneficiary is his or her primary home for the entire tax year The designated beneficiary's first cousin
Amounts that are rolled over to a new designated beneficiary must be rolled over within 60 days of being distributed. Alternatively, the change can be made by changing the name and tax identification number on the 529 account to that of the new designated beneficiary. (For related reading, see How And When To Switch Your 529 Plan.)529 Plans: Contributions
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