Disabled Veteran and his 529

[novotjo]

I have had a 529 for my oldest son for years and it has grown substantially. At 19 he joined the Army and was deployed to Afghanistan for a year of his four year up. He returned a 50% disabled veteran that is now eligible for the GI bill.
I believe that he will not choose to go to college, but if he does, it is taken care of. He is currently 28 and receives a monthly payment for his disability.
When I roll it to him, will he have to pay the 10% penalty?

[Brian_Boswell_SFC]

Greetings novotjo,

If you were to make a non-qualified withdrawal for your son it would be subject to tax on the earnings, but exempt from the additional 10% penalty normally applied to non-qualified withdrawals. Your son would not need to become the account owner to do this. The IRS provides the following guidance in this matter,

"(The 10% additional tax doesn't apply if) Made because the designated beneficiary is disabled. A person is considered to be disabled if he or she shows proof that he or she can't do any substantial gainful activity because of his or her physical or mental condition. A physician must determine that his or her condition can be expected to result in death or to be of long-continued and indefinite duration."

Thank you,

Brian Boswell
VP, Research & Development

This information does not constitute tax advice and is provided for informational purposes only. Please consult your tax advisor, financial advisor, local taxing authority, and/or plan provider or sponsor for more information.

[novotjo]

Thank you so much!
I would transfer the account to him as his tax bracket is much lower than mine.
One last question if I may, is the transfer all or none?

[dcandmc]

If you as the parent own the account and you want the taxable earnings portion to be attributed to your son when non-qualified distributions are made, you don't need to "transfer" the account to your son, you just need to make sure that distributions are made payable to your son and not to you, the account owner.