What happens if my child finishes college and there is money left over in the 529 account?


You basically have three options: withdraw the money, leave the account intact for possible graduate school, or change the beneficiary.

If you withdraw the money that is left over in your 529 account and don't use it to pay for the beneficiary's qualified higher education expenses, you'll have to pay a 10% federal penalty tax on the earnings portion of the withdrawal (a state penalty may apply as well). You may also have to pay federal, and in some cases state, income taxes on the earnings portion of the withdrawal.

Another option is to leave the account intact in case your child decides to attend graduate school in the future. If you choose this option, contact the plan to see if they have a time limit on when funds must be used.

Finally, you might consider changing the beneficiary. All 529 plans allow the account owner to change the beneficiary, though depending on the plan, there may be a fee for this service. As long as the new beneficiary is a qualifying family member, no taxes or penalty will be due. If you'd like to join a new 529 plan, you may be able to receive a "rollover" distribution from your existing 529 plan and contribute the proceeds within 60 days to a new 529 plan with the new beneficiary. Check with your existing 529 plan for more details.

Note: Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing. More information about 529 plans is available in each issuer's official statement, which should be read carefully before investing. Also, before investing, consider whether your state offers a 529 plan that provides residents with favorable state tax benefits.

If you are investing in a 529 plan outside of your state of residence, you may lose available state tax benefits. Make sure you understand your state tax laws to get the most from your plan.

529 plans are subject to enrollment, maintenance, administration/management fees and expenses. 529 plans are subject to fluctuation in value and market rise, including loss of principal.

Investors should consider the investment objectives, risks, charges, and expenses of 529 plans carefully before purchasing. More information about 529 plans can be found in the issuer's official statement. Please read the official statement carefully before investing.

Please be advised that this materials is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transactions(s) or matter(s) addressed and you should seek advice based on your particular circumstances from an independent advisor.

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