A 529 plan can be a helpful tool for saving for education, offering tax advantages and flexibility. But what happens if there’s money left over after college? Whether your student received scholarships, finished under budget, or didn’t use all the funds, you have several options for making the most of your remaining 529 balance.
1. Use It for Graduate School or Continuing Education
If you or your beneficiary plan to pursue further education, your 529 funds can cover tuition, fees, books, and other qualified expenses for graduate school, trade school, or professional certifications. This can be a smart way to invest in future career opportunities.
2. Transfer the Funds to Another Family Member
529 plans allow you to change the beneficiary to another qualified family member without penalty. This includes siblings, parents, nieces, nephews, or even yourself! If another family member is planning to attend college or pursue career training, your leftover funds can support their education.
3. Save for a Future Generation
Did you know that 529 funds can stay in the account indefinitely? You can keep the funds invested and let earnings grow federally tax-free for a future child or grandchild’s education when disbursed for qualified expenses. This long-term strategy can give your family a head start on future college costs.
4. Use the Funds for Student Loan Repayment
Thanks to recent policy changes, 529 plans can now be used to pay off up to $10,000 in student loans for the beneficiary or their siblings. If student debt is part of your financial picture, this can be a great way to reduce the burden.
5. Roll Over to a Roth IRA
Starting in 2024, new legislation allows some 529 funds to be rolled over into a Roth IRA for the beneficiary, up to $35,000 over their lifetime. This can be an excellent way to jump-start retirement savings with tax-free growth. However, certain eligibility rules apply, so it’s best to check with a financial advisor before making this move.
6. Withdraw with a Penalty (as a Last Resort)
If none of these options work, you can withdraw the remaining funds, but be aware of the tax consequences. The earnings portion of the withdrawal will be subject to income tax and a 10% penalty. However, if your child received a scholarship, you can withdraw the equivalent amount without the 10% penalty (though taxes on earnings still apply).
Making the Right Choice for Your Family
Leftover 529 funds don’t have to go to waste. With multiple options available, you can find a solution that fits your financial goals. Whether it’s further education, helping a family member, or funding retirement, your 529 plan can continue to provide value long after graduation.
💡 Not sure what to do with your leftover 529 funds? We can help you explore strategies to fit your situation. Contact us today!