A scholarship, inheritance or choosing a more affordable school are all reasons you might have unused 529 funds.
There are several ways to use up 529 funds, including transferring them to another beneficiary or rolling them over into a Roth IRA.
It’s best to consult a financial professional, as there could be tax impacts related to some of these options.
Tax-advantaged 529 education savings plans are a great way to start saving for your child’s higher education—especially considering the sharp rises in tuition over the years. But what happens to the 529 funds if they’re not used?
If your child received an unexpected scholarship, attended a more affordable in-state school or received an inheritance that went toward their education, you may wind up with leftover 529 plan funds in your account.
The good news is that you have options for your unused 529 funds, but there are some tax-related nuances to keep in mind.
“529 plans are quite flexible, because there's no time limit on when the funds have to be withdrawn from the account.”
Joni Meilahn, product management with U.S. Bancorp Investments
“There’s a myriad of reasons why there could be leftover funds in your 529 account, and fortunately there are also some good strategies for putting those funds to good use,” says Joni Meilahn, product manager with U.S. Bancorp Investments. “In fact, 529 plans are quite flexible, because there's no time limit on when the funds have to be withdrawn from the account.”
One of the most obvious ways to use your unused 529 funds is to save them for future educational needs. If your child earned a bachelor’s degree, for example, they may want to enroll in a graduate school program and use the funds to cover some or all of that tuition.
You can also use 529 funds to pay for the beneficiary’s other educational expenses, including:
Of course, restrictions apply.
But if your child isn’t interested in adding more degrees to their resume, there are other ways to use up the funds left in a 529 account. Here’s how those different options work and the pros and cons of each.
Regardless of how you plan to liquidate the funds remaining in your 529 account, an experienced financial professional can help you navigate the related complexities and make the right choice for your specific situation.
“If you try to DIY this, you may not be aware of the various guardrails, rules and regulations concerning 529s,” says Meilahn. “A financial professional will also explain the gifting tax consequences and help you better understand how the 529 plan operates within the context of your overall financial planning.”
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