👩‍🎓Options with excess funds in a 529 plan

Let’s assume you were a good saver. You put aside $200,000 in a 529 college savings account for your child’s college education by the time they started school. Despite the assets available for a more expensive private college education, your child attended an in-state public school at a cost of $30,000 per year. While you may be ecstatic that your savings will cover the cost of their education, your next question is: What are my options with the remaining ~$80,000 in the 529 plan?

Let’s back things up: A 529 college savings plan is a tax advantaged account to use for college education savings. Amounts grow tax deferred and are distributed tax free from the plan when used for qualifying higher education expenses. Especially when starting at a young age, the tax advantaged growth in these accounts can make the 529 an efficient college savings tool.

But what about excess funds? Funds that are withdrawn from the plan when not used to cover higher education costs are subject to taxation and a 10% on the growth of the savings. For funds that may have significant growth, this penalty can loom especially large.

So what are your options with excess funds in a 529 plan?

1. Transfer assets to a family member of the current 529 plan beneficiary
   • Includes the current beneficiary’s:
     • Siblings or Step-Siblings
     • Spouse
     • Son, daughter, stepchild, foster child
     • Niece, Nephew or First cousin^[1]
2. Utilize the 529 in another sense:
   • Up to $10,000 can be used for:
     • Private K-12 tuition
     • Student loan payment
     • A registered apprenticeship program

Is there a timetable associated with transferring assets to another family member?

1. No, unlike a Coverdell education savings account where the unused funds must be rolled into another education savings account by age 30^[2], there is no set age by which the transfer must occur. The only restriction is that only one transfer is permitted per calendar year without tax or penalty implications.

Have questions on the use of funds in your 529 college savings plan? Feel free to reach out. I’m here to help!

All the best,

Andrew Holmes, Certified College Planning Specialist™

Andrew@PlanWithFPS.com

860-878-7032

Check out my recent whitepaper: 5 College Planning Mistakes to Avoid

Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. Financial Planning Solutions, LLC (FPS) provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client. Information herein includes opinions and source information that is believed to be reliable. However, such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.

[1] Also includes son-in-law, daughter-in-law, brother-in-law, sister-in-law, father-in-law, mother-in-law, aunt and uncle or their spouse - https://www.savingforcollege.com/article/who-is-a-member-of-the-family-of-a-529-plan-beneficiary

[2] https://www.bankrate.com/loans/student-loans/unspent-coverdell-esa-options-limited/