Hi all!
Our son, beneficiary of a 529, is considering taking a non-qualified distribution this year (FY 2025) as he’s finishing up graduate school and wanted to seek some of your thoughts.
-Beneficiary is 23, he has very little income (close to zero), we claimed him as a dependent this past tax year
-529 account has ~$160k, ~$80k is earnings (50/50 earnings to contribution)
-He received over ~80k scholarship so not concerned about the 10% penalty, just the tax implications.
Questions:
1. If our son took a distribution, would he be able to use the standard $15,750 deduction against the earnings and have it taxed at his income bracket, or would we have a kiddie tax concern? What would that look like if there was a kiddie tax concern? Not sure how that works in relation to 529’s as it seems to be a somewhat novel issue.
2. Would there be a benefit to waiting a year for him to be 24 and then doing this same transaction? (Assuming kiddie tax is an issue)
3. Is there another more tax efficient way to remove these funds from this 529? Don’t want to do a IRA, want to turn it into cash or cash like ultimately.
