What happens if I change the beneficiary to someone that is not a member of the family?

The change would be treated the same as a refund and the Earnings Enhancements and the interest thereon will be forfeited. In addition, this change could be considered by the state and IRS to be a non-qualified disbursement for which the earnings portion of the withdrawal would be taxable to the account owner and subject to an additional ten percent (10%) federal tax.