Ways to Use Leftover 529 Plan Funds
Transfer the 529 Balance to Another Beneficiary
529 Plans allow you to change the beneficiary to another qualifying family member without tax consequences. This is an easy update that allows you to use the savings for another family member who will attend college. When changing beneficiaries, you should not skip generations as it could trigger a tax penalty.
Make Student Loan Payments
The SECURE allows families to take tax-free 529 plan distributions to pay off student loans. Both principal and interest payments toward student loans are considered qualified education expenses. However, the portion of the student loan interest paid for with tax-free 529 plan earnings is not eligible for the student loan interest deduction. You can pay up to $10,000 in qualified student loan repayments per 529 plan beneficiary.
Rollover into a Roth IRA
Effective January 1st, 2024, 529 account funds may be transferred into a Roth IRA as long as the 529 Plan has been opened for at least 15 years. The Roth IRA owner must be the 529 plan’s designated beneficiary. You can rollover the maximum Roth IRA limit each year ($6,500 for 2023) and up to a total of $35,000 over your lifetime.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.