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Say there is a 529 account with $30K in it. It is owned by "account holder" who is in the 20% capital gains tax bracket.

The "beneficiary" of the 529 is no longer going to school, is not disabled, but has low enough income that their capital gains tax bracket would be 0%.

Is there a way for the "beneficiary" to take an unqualified withdrawal from a 529 so the tax liability falls on them?

My thought is that the "beneficiary" would only pay the 10% penalty and not any capital gains taxes (because of their low income), where the "account owner" would pay a total of 30% of the withdrawal.

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Yes. The simple way to do this is to transfer 'ownership' of the account as well.

If we have any funds left in my daughter's 529, I'd change the beneficiary to a grandchild, and make her (my daughter) the owner.

This would take you off the account completely.

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    Wow - I just read you can transfer it without it being considered a gift. That seems like a nice loophole – Adam Meyer Dec 13 '18 at 4:33
  • The current limit is $400K per beneficiary. With the estate exemption at $11.2M, it's a small amount, relatively speaking, and does come with the 10% hit. In your case, a big savings, skipping the cap gain tax. – JoeTaxpayer Dec 13 '18 at 10:12

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