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Q. I have two kids and one of them is refusing my help for college bills. I have probably half of what he needs in a 529 plan. His sibling also has a plan. Should I change this sibling to be the beneficiary or should I wait in case he changes his mind?
— Mom

A. College is a very expensive proposition, and we’re wondering how your son plans to pay for it all.

Depending on the answer to that question and the expected cost of college for each of your children, you may want to wait before you make a move.

Changing beneficiaries on a 529 plan is not a hard thing to do, but you can take some time to decide if it’s the right thing to do, said Bill Connington of Connington Wealth Management in Paramus, New Jersey.

He said most plans will allow you to change beneficiaries with a form, and depending on the plan, you may have to pay an administration fee.

As a rule, Connington said, changing the beneficiary of an account can result in a gift or worse. But with a 529 plan, the account owner can change the beneficiary without tax consequences if the new beneficiary is a member of the family of the old beneficiary.

A member of the family is defined in IRS Code Section 529, but includes, among others, siblings, decedents, parents and cousins.

So for you, it seems there wouldn’t be tax consequences if you make the beneficiary change among siblings.

“If the new beneficiary is not a member of the family, the change will be treated as a non-qualified distribution and the earnings portion of the account will be subject to income tax and a 10% penalty,” he said.

But back to your son’s decision.

You should try to sit down and run some numbers with him. See what kinds of scholarships or grants he can expect, but then take a close look at the costs of borrowing. Look at how student loans will accumulate over time, what the monthly payment is likely to be upon graduation and how this will impact your son’s budget after college.

He may change his mind when you run the numbers together.

[Editor’s note: Keep in mind there are limits on how much a student can borrow in federal education loans, and getting private student loans often requires having good credit or a co-signer with good credit. Taking on student loan debt can also have a significant impact on your future credit health, so it’s smart to keep an eye on your credit before you borrow and as you’re paying off education debt. As part of your regular credit checkup, you can see two of your credit scores for free each month on Credit.com.]

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Image: Cathy Yeulet

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