My child is going to get a Master's degree at a foreign university. Unfortunately, this school is not listed in the 2024-2025 DoE/FAFSA list of schools eligible for payments via the NY State 529 plan that I (as account owner) have for my child (beneficiary).
There are roughly $26,000 in the account, with $22,000 as principal and $4,000 as earnings. As I want to use this money for her grad school expenses, my only option is to distribute this entire sum and pay any taxes due (including any taxes reclaimed for having got NY state deductions in past years).
I've done some what-if calculations and it appears that the lowest overall taxes are when I have the money distributed to my child. She gets the 1099-Q and reports the tax on the earnings on her Fed tax return (she has earned income) while I am only taxed by NY State on the earnings and on the amount of non-qualified distributions for which I previously claimed NY state deductions.
My question is: Is this a legal way to close the account, and distribute the money so as to pay the lowest overall taxes? (The NY State 529 plan can distribute to either party and offers no tax advice. So my question is about the legality of what I would like to do, not the mechanics of the distribution.)
Thanks for any help.
