Child drops out of college. What to do with accounts?

[prinehart]

My daughter has decided to drop out of college after 2 years in school. We have monies in both a Coverdell and in our state's 529 plan. Husband is owner of both, with her as beneficiary. We funded the Coverdell from 2003 - 2009 and then let it grow. From 2009-2017, we funded a 529 to take advantage of the state income tax credit. 529 is about 1/3 earnings. I do not know how much of the Coverdell is earnings, as it was transferred from USAA to Victory Capital, and they did not transfer that information, and I don't have any way of going back that far to find it.( I have a rough idea, but am missing a few documents from few years.) My 2020 1099Q from Victory Capital left the earnings box blank.
I would like to roll-over the Coverdell into the 529, so that all monies would be together in the event daughter decides to go back to school. She is investigating religious life and will probably be out of school for a few years or forever. She is 20.
College Advantage (529 Ohio) says that if they don't receive a statement of earnings vs principle at the time of transfer, all monies transferred would be considered earnings. Victory Capital says they can't provide one. This would hurt me in the event of daughter not returning to school and we withdraw the money. This would make the earnings almost 60% of the account if they applied the money this way. I do not have anyone else to give the money to, unless giving it to a niece or nephew is allowed. The Coverdell has about $19,000 in it and probably half is earnings.
Can these monies be donated to a religious order or charity without penalty?
I really don't know how to best proceed to minimize taxes and penalties. Chances of saving it for a grandchild are slim. Any advice would be appreciated.

[rsinj]

You can change the 529 beneficiary to a niece or nephew, leave it as daughter and when the time comes change it to grandchild, you could even change it to yourself or anyone else who is not a relative.

You would not be able to donate the money to a charity without making the withdrawal for non-qualified expenses and then being subject to taxes on (what is documented as) the earnings. However, you could work with your local church or religious organization and find a student in need who you could change the beneficiary to and then make withdrawals/payments on his/her behalf at the appropriate time.

[mark]

I live in NY and similarly wanted to move a Coverdell to a 529. I was actually doing it a little at a time as I preferred how the money was invested in the Coverdell over the 529, I did actually do a transfer (rollover?) for a few years where I provided the cost basis. One day I was talking to a rep on the phone and was told if I simply withdraw the money from Coverdell and then within two months contribute it to the 529, the cost basis will get reset. This really did not make sense to me, but I called and was told the same thing from a second rep. The 529 does not really know where the money came from. As far as they are concerned, it's a new deposit. When I do my taxes, in Turbotax, I indicate that my withdrawal from the Coverdell was contributed to a 529 and Turbotax, therefore, does not treat it as a taxable event.

I am still leery, but that is what I was told. But, I do plan to use it all for qualified withdrawals, so the cost basis really doesn't matter as far as I'm concerned.

[dcandmc]

You can change the 529 beneficiary to a niece or nephew, leave it as daughter and when the time comes change it to grandchild, you could even change it to yourself or anyone else who is not a relative.

You would not be able to donate the money to a charity without making the withdrawal for non-qualified expenses and then being subject to taxes on (what is documented as) the earnings. However, you could work with your local church or religious organization and find a student in need who you could change the beneficiary to and then make withdrawals/payments on his/her behalf at the appropriate time.

You can't just change the 529 beneficiary to "anyone else" and avoid tax consequences. Tax consequences can be avoided with a change of beneficiary only if the new beneficiary is a member of the original beneficiary's family. See IRS Pub 970 for how the IRS defines "members of the beneficiary's family" in this case.

[rsinj]

Thanks for the correction.