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 they are 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 or certain apprenticeship programs … any path your child chooses that involves professional training at an accredited institution could be eligible for tax-advantaged treatment in a 529 savings plan. Qualified expenses include expenses for fees, books, supplies and equipment required for the participation of a designated beneficiary in certain apprenticeship programs.
And thanks to changes made by the One Big Beautiful Bill Act (OBBBA), 529 accounts can now be used to cover a wider array of qualified educational expenses, including certain postsecondary credentialing program expenses and expenses in connection with enrollment or attendance at an elementary or secondary public, private or religious school (kindergarten through 12th grade) beyond just tuition.
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
A younger child can also take advantage of the money you saved in your 529 savings plan. Now, qualified K-12 expenses include (but are not limited to) tuition, curriculum materials, textbooks, instructional materials and online education materials up to a maximum of $10,000 incurred during the taxable year per beneficiary. Additionally, starting in 2026, the annual limit for K-12 expenses will increase from $10,000 to $20,000. However, note that not all states treat K-12 expense as 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
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 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 have been open at least 15 years.
- 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 contributed (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 they won’t change their 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.
