<p>The 529 is a tax deferred plan i.e. you have not paid any taxes on dividend, gains or income that you accrued during the period. The objective is to allow people to save for children’s education and if you withdraw the money for qualified educational expenses, the government will not ask you to pay for taxes on the dividends, gains etc. </p>
<p>Now what you are asking for the taxes to be foregone, even though you are going to a foreign institution. I am sure your institution is good, but you can imagine the amount of tax evasion that can go on if there were no restrictions on the institution that you can spend the money on. If you had paid the taxes, then you can do what you want, if you have legally not paid the taxes, you have to abide by these restrictions.</p>
<p>So what is your alternative: You can withdraw money from the 529 but you will both pay taxes and a penalty. I think that the penalty is 10%</p>
<p>Alternatively, you can keep money here assuming you will be coming back for graduate or professional studies. Another way is for your parents to change the beneficiary to a sibling, so that they now use the money for the sibling. Or it can be changed to the name of grandchild. There is no rule that you have to use the money now and your parents can change beneficiaries. This is my understanding, others may want to weigh in.</p>