You’ve spent years pouring money into your child’s 529 plan. But what if your child doesn’t go to college, or there are leftover funds in the account?
In this new video, our advisors explain three ways savers can use a 529 plan beyond paying for college. Watch now to learn some options to make use of your savings as you and your children head into the next chapter of your lives.
Transcript
Saving for your child’s future education can be a challenge. 529 plans are designed to make it easier by offering tax advantages and giving your money the opportunity to grow. However, these plans aren’t just for parents of teens headed to college.
Many grandparents create 529s to fund their grandchild’s education and some families set them up for multigenerational use. Today we’ll show you three ways that three advisors have used 529s with actual clients.
What Happens if You Overfund a 529 Plan?
One common worry I hear from families is overfunding a 529. You put money away for years and then you wonder what happens if your child skips college, wins a scholarship, or simply doesn’t use it at all. Here’s the reassuring part.
Using Unused 529 Funds for a Roth IRA Rollover
If some of the funds go unused, you may be able to roll a portion into a Roth IRA in your child’s name, turning leftover education savings into a head start on their retirement. Not everyone qualifies for this option, though. Generally, the 529 needs to have been open at least 15 years.
529-to-Roth IRA Rollover Rules and Limits
Your child needs earned income for that year at least equal to the amount you roll over. The rollover must stay within the annual Roth contribution limit and there’s a lifetime cap of $35,000. Enrolling unused 529 funds into a Roth IRA isn’t your only option.
Changing a 529 Beneficiary to Another Family Member
You may be able to repurpose one child’s unused 529 money and put it toward the cost of education for another child. If you don’t have another child, the funds can go toward any member of your family. That means it can go toward your own education if you decide you want to go back to school, it can be used to help fund a niece or a nephew’s education, and you can save it for future grandchildren as a means of building generational wealth.
Using a 529 Plan for Children, Grandchildren, and Other Family Members
At Thrive, we’ve worked with many clients who have done this and the process is often more straightforward than most people would expect. Typically, clients only need to change the beneficiary designation on the 529. You may be able to apply your child’s 529 plan to educational expenses years before they go to college.
Using a 529 Plan for Private K-12 Tuition
Some of my clients don’t realize that they can use a 529 plan for private K-12 tuition and related expenses. In fact, I use this strategy with my own children. Now, this is where it helps to know your own state’s rules.
Pennsylvania 529 Plan Rules for K-12 Education
In Pennsylvania, 529 withdrawals for K-12 are treated just like the federal rules, so families here can use their plan this way. If you live in another state, it’s a good idea to see how your state handles it. The three examples we provided today may or may not be right for your family.
How 529 Plans Can Fit Into College and Education Planning
Ultimately, careful financial planning is a sound way to determine how to put these versatile accounts to use. If you need guidance on college planning, we want to hear from you. To schedule a meeting, call 215-376-5530 or email us at info at thrivewealth.com. Thanks for watching.
Frequently Asked Questions About Ways to Use 529 Plans
Can a 529 plan be used for anything besides college?
Yes. While 529 plans are commonly used for college expenses, they can also be used in other ways, depending on your situation. Eligible options may include paying for private K–12 tuition, changing the beneficiary to another qualifying family member, or, if certain IRS requirements are met, rolling a portion of unused funds into a Roth IRA. Understanding these rules and the options available to you can help you get greater value from your 529 plan.
What happens if my child doesn’t use all the money in a 529 plan?
Unused 529 plan funds don’t necessarily go to waste. Depending on your family’s goals, you may be able to change the account beneficiary to another child or qualifying family member, or potentially roll a portion of the funds into a Roth IRA if the account meets the eligibility requirements. The advisors at Thrive Wealth Management can help you evaluate your options and determine a way to use any remaining 529 plan assets based on your unique needs and objectives.
Should I open or update a 529 plan as part of my financial plan?
A 529 plan can be a valuable education savings tool, but the best strategy depends on your family’s goals, the ages of your beneficiaries, and your broader financial picture. At Thrive Wealth Management, we help families determine how a 529 plan may fit into their overall financial plan, whether you’re just getting started, planning for multiple children or grandchildren, or deciding what to do with unused education savings.
This material is provided for informational and educational purposes only, should not be viewed as an exhaustive discussion of the topics presented, and should not be construed as individualized advice for any reader’s personal circumstances. For guidance on how these matters may impact your financial plan or investment portfolio, please contact your Thrive Wealth Management, LLC representative. While the information presented is believed to be factual and up to date, Thrive Wealth Management, LLC does not guarantee its accuracy and, due to various factors, including but not limited to changing laws and regulations, this information is subject to change. All expressions of opinion reflect the judgment of the authors as of the date of publication. Options for use of 529 assets vary by state, and, as such, certain of the options discussed herein may not be available for all clients. Thrive Wealth Management, LLC is not a law firm or an accounting firm, and no content contained herein should be construed as legal or accounting advice.
Please consult with the qualified professional(s) of your choosing for legal and accounting advice. Strategies used by Thrive Wealth Management, LLC and its representatives for personal purposes may not be appropriate for all clients, and similar benefits or outcomes may not be achieved for all clients in all cases.
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