If you dont use the 529,  what can you do?

If you dont use the 529, what can you do?

January 26, 2024

Starting in 2024, you can roll unused 529 assets—up to a lifetime limit of $35,000—into the account beneficiary's Roth IRA, without incurring the usual 10% penalty for nonqualified withdrawals or generating any taxable income.

If you don't end up using a 529 plan for qualified education expenses, there are several options available to you. While the primary purpose of a 529 plan is to fund higher education, life can bring unexpected changes, and flexibility is built into these plans.

One option is to change the beneficiary of the 529 plan. If the original beneficiary decides not to pursue higher education or doesn't use all the funds, you can designate a new beneficiary who is an eligible family member. This flexibility extends to siblings, cousins, and even yourself, allowing you to redirect the funds to someone else's education without incurring taxes or penalties.

Another alternative is to keep the 529 plan account open for the original beneficiary to use in the future. Education is a lifelong journey, and the funds can remain in the account, potentially growing through investment, until the beneficiary decides to pursue further education or training.

If changing the beneficiary or waiting for future education needs isn't feasible, you can withdraw the funds for non-qualified expenses. However, it's crucial to note that non-qualified withdrawals may be subject to federal income tax and a 10% penalty on earnings. The contribution portion of the withdrawal is not subject to the penalty but may be subject to recapture in some cases.

It's essential to consider these options carefully and consult with a financial advisor to make informed decisions based on your specific circumstances. Understanding the rules and potential consequences of non-qualified withdrawals can help you navigate unexpected changes and make the most of your 529 plan, even if the original educational plans don't unfold as initially anticipated.

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