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  • Amy Privette

Got Unused Money in a 529 Account? We've Got Ideas.

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Month after month, year after year, you dutifully socked away money in a 529 account for your child to help with future college expenses. Now, here you are, mere weeks away from your child’s high school graduation, and she announces that she has decided not to pursue further education. You scratch your head and wonder "if our child doesn't use the 529, what happens?"

There are many reasons why funds in a 529 account do not get fully consumed. It could be your child decides not to go to college, but it may also be that your child received generous scholarships or grants reducing the need to draw from 529 funds. Even the receipt of an inheritance from a deceased loved one could lessen one’s reliance on 529 monies to pay for college. Sadly, funds could be left because the 529 account beneficiary tragically died or became too sick to pursue further education.


Whatever the case, if you have unused dollars in a 529 account, the good news is that money is not lost to you. Still, you want to make sure you don’t trigger any penalties or incur a tax bill, if you can avoid it. So, here are several ideas of what to do with money remaining in a 529 account:


EXPAND YOUR DEFINITION OF EDUCATION Funds set aside in a 529 account can be used for educational opportunities other than those associated with a traditional college or university. They can be used to cover tuition and expenses at vocational and trade schools, as well as apprenticeships through area community colleges. You can also use 529 funds for up to $10,000 of private school tuition each year, even at the K-12 level.


If education—in any of its forms—is completely off the table, then your next best option is to change the beneficiary. Perhaps there is another family member (a sibling, for example) who could use the funds for their education. There would not be any tax consequences associated with the family member switcheroo. The IRS is generous in its application of who constitutes a qualifying family member and could include your niece, your first cousin, and even your son-in law’s mother. You could name yourself—the parent—as the beneficiary and take that photography class you've always wanted to take! Changing the beneficiary is not the same thing as a rollover. Rolling over funds from one 529 account to another 529 account is also a viable option, though there are limits to how much can be rolled over within a certain time period. If you change the designated beneficiary, however, you would not need to transfer (or rollover) the account.



Unlike some other education savings accounts, there is no age limit that applies to 529 beneficiaries. So, one option you have is to leave the money in the 529 for later. Maybe your child wants to take a gap year to work or travel before going back to school. Maybe your child just needs a little more time to mature before he or she feels ready to leave the nest. Perhaps your child’s health prevents them from pursuing further education right now, but that will not always be the case. If you have reason to believe your child will eventually make use of the funds, leave the money where it is and wait for that day to come.

Even after receiving a Bachelor's Degree, your child could later choose to pursue graduate school or a professional degree (a law degree perhaps?), and the remaining funds in the 529 account could be used for that purpose.



Another tax-free option to use up 529 funds is to pay off or pay down student loans. This is capped at $10,000 for the beneficiary, but remember, you can change the beneficiaries as often as you need. Each time you change the beneficiary, you would have a new opportunity to pay $10,000 of student loans for that person.



A new option will be available to families next year courtesy of the SECURE Act 2.0. Starting in 2024, funds remaining in a 529 account can be rolled over to a Roth IRA for the beneficiary (a rollover to an IRA for the contributor is not allowed). There are several rules that govern this transfer:

  • The maximum that can be rolled over from a 529 to a Roth IRA is $35,000 per beneficiary.

  • You cannot roll over all $35,000 at once.

  • You must adhere to the annual contribution limits for Roth IRAs (in 2023, it’s $6,500 or your earned income, whichever is less).

  • Newer contributions (those made within the last 5 years) are not eligible for the rollover. The Roth IRA rollover is available for 529 plans that have been in place for at least 15 years. Because this law is new, it is unclear whether changing beneficiaries on the 529 account would reset the 15-year period, so for now, it’s best to consider this a one-beneficiary strategy.



If you have money remaining in a 529 account because the beneficiary received scholarships and none of the other options listed above make sense for your situation, then you are allowed to withdraw funds from the 529 account up to the amount of the scholarship received. There would be no penalty assessed for this withdrawal; however, you would owe income tax on any growth (“gains”) on the contributions.



If you truly have no other options, then all that remains is to have the remaining funds distributed. This would be considered a non-qualified distribution, and there would be a 10 percent penalty. You also will owe income taxes based on the gains or earnings on your contributions. It’s less than ideal but at least you know your money is not lost to you.


We should remind you that 529 accounts are not the same as Coverdell Education Savings Accounts (ESAs). ESAs have different rules than those discussed in this article and transferability operates differently. Do not use the strategies discussed here for your ESAs without talk with a financial or legal professional.


All is not lost when there are changes in your child's plans or unforeseen circumstances. There are plenty of ways you can deal money remaining in a 529 account. Give us a call and we can help you navigate your particular situation.

Phone: (919) 678-5761 Email:

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