Q. 529 withdrawal due to the death of the beneficiary. Will there be a 10% penalty applied to earnings if I withdrawal all funds and close my daughter's 529 account?
A. No. For this type of non-qualified withdrawal, the earnings portion will be subject to federal and state income taxes but will be exempt from the 10 percent federal tax penalty.
Q. Can Turbo-Tax handle this distribution?
A. Yes. That question (was the distribution made because the beneficiary died) will come up in the interview.
Even if the beneficiary has no siblings, there are other relatives who qualify for a beneficiary change, including yourself. Qualified relatives are:
1. Son, daughter, stepchild, foster child, adopted child (of the beneficiary), or a descendant of any of them.
2. Brother, sister, stepbrother, or stepsister.
3. Father or mother or ancestor of either.
4. Stepfather or stepmother.
5. Son or daughter of a brother or sister.
6. Brother or sister of father or mother.
7. Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law.
8. The spouse of any individual listed above.
9. First cousin.
