When your child doesn't need a 529 education savings plan after all

Life is full of surprises. Whether your child earned a full scholarship to the college of his choice or opted to become a full-time artist instead, your 529 savings plan is still a valuable investment. Maybe the money won’t be used as you originally intended, but you can still benefit from the flexible options available to you.

Key takeaways

  • Be assured that the money you've saved is all yours, no matter what.
  • Look for other ways to use the assets in your 529 savings plan.
  • Consider transferring the account to another beneficiary.

Life lessons

Congratulations on putting aside a chunk of money for your child's education. Sometimes life doesn't go exactly as planned and your child chooses a different path. That's okay too. The money you've saved in your 529 savings plan can still be put to good use.

Your money, your choice

You’re willing to put a bit of money aside so that college will be within reach for your child. But what if she's on a different page and won’t need that 529 savings plan for college after all? Rest assured that the money you save in a 529 savings plan is always yours and always accessible. In fact, the flexibility of the plan is one of its greatest benefits.

Pursue another path

The money in a 529 savings plan isn’t limited to four-year universities. Community colleges, seminaries or trade schools ... any path your child chooses that involves professional training likely is eligible for a 529 savings plan. Even expenses for fees, books, supplies and equipment required to participate in certain apprenticeship programs are qualified expenses. You can start your search for accredited choices on the U.S. Department of Education database.

And keep in mind that you can use the funds for more than just tuition and training. Related supplies and equipment — from textbooks to laptops — are qualified expenses.

Change beneficiaries

One of the best perks of a 529 savings plan is that you have the option of transferring the account to another beneficiary. The new beneficiary can use those funds for all the same educational expenses — including room and board, tuition and books. You might consider rolling this account into a sibling’s 529 savings plan, for instance.

Use it for primary education

The assets in a 529 savings plan can be used for tuition at private K-12 schools (up to $10,000 a year). Perhaps a younger child can take advantage of the money you saved. Or if you know for a fact that your child isn’t interested in pursuing higher education, you can possibly start spending even before high school graduation. Note that not all states allow K-12 tuition as a 529 savings plan qualified expense for state tax purposes.

Pay toward a student loan

If a beneficiary takes on student loan debt, you can use 529 assets to make payments toward the principal or interest on qualified student loans (up to $10,000 lifetime maximum for the designated beneficiary and each of their siblings). Remember, you can designate yourself as the beneficiary.

Start retirement savings early

Thanks to provisions in the SECURE 2.0 Act of 2022, beginning in 2024, unused funds held in a 529 account can be rolled over directly into a Roth IRA (individual retirement account) for the beneficiary of the 529 plan, within certain limitations. If you are concerned about overfunding their 529s, you now have an option to access at least a portion of leftover assets without taxes or penalties. Limitations to this provision include the following:

  • The 529 account must be at least 15 years old.
  • The amount to be rolled over must have been in the account for at least 5 years.
  • The Roth account must be in the name of the 529 plan beneficiary.
  • Rollovers are limited to a maximum of $35,000 per beneficiary over their lifetime.


Take the cash

It's also important to remember that as long as the money is used for a qualified education expense, it is tax-free. If used for something else, you’ll pay federal and sometimes state income taxes on any gains, as well as a 10% federal tax penalty. States take different approaches to the income tax treatment of withdrawals. For example, withdrawals for K-12 expenses may not be exempt from state tax in certain states. (If that dream scholarship comes through, you are allowed to withdraw the amount of that scholarship with no penalty.)

Because 529 plan contributions are made with after-tax dollars, the amount you originally invested (the principal) is not subject to tax or penalty; however, withdrawing the gains will trigger additional costs. You’ll want to consider your options and carefully craft a strategy that lets you keep as much of your money as possible.

Leave it alone

If your child isn’t college-bound today, it doesn’t mean he won’t change his mind later. Your 529 savings plan account can continue to grow tax-free for decades to come, so there’s no rush to make any changes.




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