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Money Left Over in a 529 Plan?

February 23, 2024

There’s a new option for leftover funds from a 529 college savings plan — your kid’s retirement.

Question: We put four kids through college using 529 college savings. All four are out of college with good jobs and we have about $50,000 left over. Would you suggest just letting it build for the grandkids’ college in 20 to 30 years? The amount should grow considerably in that time and may pay for all the grandkids’ college expenses as well.

Answer: You have a number of options with leftover 529 funds, including eventually changing the beneficiaries to your future grandkids. Since none have been born yet, and may not be for a while, you can just leave the accounts alone to grow for now.

In addition to paying qualified college education expenses, up to $10,000 per year of 529 funds can be used for private school tuition for kindergarten through 12th grade. In addition, up to $10,000 per beneficiary can be used to repay student loans.

If you do decide to earmark funds for the grandkids, you may want to think about the best way to divide the money. You may not know for a while how many grandkids you’ll have. It’s entirely possible for the first grandchild to reach college age before the last one even comes along.

Another option that’s new this year is to use the leftover 529 money to fund Roth IRAs for your children, the original beneficiaries. If the account has been open at least 15 years, each year you can roll over an amount equal to the contribution limit, which for 2024 is $7,000. (The lifetime rollover limit for each beneficiary is $35,000.) This assumes the beneficiary has earned income at least equal to the rollover amount.

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* Liz Weston writes a personal financial Q&A column in the San Diego Union-Tribune. Published 4 February 2024.