InvestED | 529 Leftovers: What are my options?
A few years ago, I bought a smoker to smoke meat. If you have ever smoked meat, you know that it takes a LONG time to cook, but it is SO worth it! And because it takes so long, we typically smoke more meat than we need to so there are leftovers for days to come. The leftover smoked meat makes incredible chili, tasty omelets, sandwiches and who knows what! As a busy family with 4 kids, really good food that is leftover isn’t leftover for long!
If you have kids that are considering college, you have probably thought about ways to pay for it. A popular option, for good reason, is a 529 Plan. A 529 is a tax favored account for education that grows tax-free and is not ever subject to tax if used for eligible education expenses. 529 Plans are state-specific, with each state having its own rules and limits*. But that is for another article! For many of our clients, they have invested some money in a 529 plan but find themselves wondering – what happens if my kid doesn’t go to college, or we don’t spend all of it? What do we do with the leftovers?
1.) Child's post-graduate education.
Most 529 plans allow this, so it’s a great way to continue saving for your child’s future education.
2.) Transfer the funds to another beneficiary.
This can be another child, grandchild, or even yourself if you decide to go back to school. As long as the new beneficiary is a qualified family member (spouse, son, daughter, son-in-law, daughter-in-law, niece, nephew, or their spouse, etc), you can use the funds for their education.
3.) Allocate up to $10k to be used for K-12 education expenses.
A new law in 2018 allows for private school tuition, books, and other related expenses to be paid with the leftover funds.
4.) Other education options.
Such as vocational schools, trade schools, and apprenticeships.
5.) Roll up to $35k* (lifetime limit per beneficiary) into a Roth IRA.
Beginning 2024 for the benefit of the student (not the parent or grandparent who funded the account). *there has been some information released (in the SECURE Act 2.) at the end of December 2022) on the age of the 529 plan account, limits, etc but we are still waiting on some clarification from the Government on specifics.
6.) Withdraw the funds.
But be aware that if you use the funds for non-qualified expenses, you will have to pay taxes on the earnings and a 10% penalty. So, it’s important to consider all other options before withdrawing the funds.
There are several options for what to do with leftover funds in your 529 plan. Sometimes having leftovers is a great problem to have! If you have questions, let’s chat…over lunch at a BBQ place!
*Before investing, the investor should consider whether the investor or beneficiary’s home state offers any state tax or other benefits available only from that state’s 529 Plan.
Securities and Investment Advisory Services offered through M Holdings Securities, Inc., a Registered Broker/Dealer and Investment Advisor, Member FINRA/SIPC. Rose Street Advisors, LLC is independently owned and operated. File # 5646225.1
Jeremy Heavey
AIF ® | FINANCIAL ADVISOR
Jeremy is passionate about partnering with individuals and families to identify what is important in their lives and creating a comprehensive financial strategy to help them reach their life goals. This holistic approach allows Jeremy and the wealth management team to ensure the specific needs of the client are front and center as they make investment recommendations and collaboratively design custom-tailored financial plans.
Jeremy has a professional track record starting, leading, and managing for-profit and non-profit organizations. He is a graduate of Taylor University and has completed business programs at both Hong Kong Baptist University & Harvard Business School. Jeremy is also formally trained and certified in behavioral assessment, conflict management and life coaching. Jeremy, his wife Kim and their 4 kids reside in Kalamazoo. They love spending time exploring the outdoors, fixing up their farmhouse, and living life with friends and extended family.
Fun fact: Jeremy has been playing drums since he was 13 years old and made callbacks for the Blue Man Group.
Interested in more?
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