Most families don’t have any money left in a 529 college savings plan account. But some do. There are several options for using the remaining funds.
Reasons for Leftover Money in 529 . Plan Account
There are many reasons why a family might have excess money in a 529 college savings plan account.
- The family may have saved more than they needed to pay for college.
- The student may have attended a low-cost college, such as an in-state public college or one of six colleges that have generous “no loans” financial aid policies.
- The student attended a US military academy, where most of the college’s costs are paid for by the federal government.
- The student has been awarded a major scholarship or has received paid educational assistance from an employer.
- The student did not go to college or dropped out of college.
- The student dies or becomes disabled.
Options for using the remaining plan funds 529
If there is money left in the 529 plan, you can Change the beneficiary To a relative of the current beneficiary. Relatives include brothers, sisters, parents, grandparents, aunts, uncles, cousins, nieces, nephews, children, grandchildren, and their spouses.
You can tokens From a 529 plan to a 529 sibling plan, a 529 sibling plan, or an ABLE account.
There is no need to take the distribution, as there are no age limits or time limits for distributions. You can only Leave the money in the 529 . plan. Since the beneficiary can be changed to the beneficiary’s children, grandchildren, and other great-grandchildren, a 529 plan can be a great way to leave a legacy for future generations.
The 529 plan will continue to make money, even after the 529 plan account balance reaches your total contribution limit.
The child may decide to go back to college later. 529 plan can be used for Pay for graduate school, Beside complete education Expenses, not just college school. The beneficiary does not need to be a degree student.
529 plan can be used for Pay off student loans From the beneficiary’s brothers and brothers. If the account owner changes the beneficiary to a parent, the 529 plan can also be used to repay the principal’s loans. There is a lifetime limit of $10,000 per borrower that applies in total across all 529 plans. This often comes in handy when an older sibling graduated from college several years ago and still has student loans from his own education.
The last option is Take an unqualified distribution.
Non-qualified distributions from the 529 . plan
The portion of profits from a nonqualified distribution is taxed at the recipient’s rate, plus a 10% tax penalty.
There may also be a refund for state tax credits to the extent that the ineligible distribution is attributable.
Beneficiaries of a 529 plan distribution can include the beneficiary, the account owner, and the college the beneficiary attended. If payment is made to a college, the ineligible distribution will be taxable to the beneficiary, not the account owner.
Usually, it would be better if the beneficiary was the beneficiary, because the beneficiary is often in a lower tax bracket.
Profits are included in the distribution proportionately. One cannot just take the distribution of contributions, unlike a Roth IRA.
If there are multiple 529 plans, take a nonqualifying distribution from the 529 plan with the lowest dividend, since the tax and tax penalty are based only on the dividend portion of the nonqualified distribution, not the full distribution amount.
The tax penalty can be waived
The tax penalty will be waived in certain cases.
- If the distribution is ineligible because the beneficiary received tax-exempt educational assistance, such as a scholarship, veteran education assistance, or employer-paid educational assistance, the tax penalty for the ineligible distribution will be waived up to the amount of the tax-exempt educational assistance.
- If the distribution is ineligible because the beneficiary attended a military academy, up to the cost of tuition at the military academy, as defined by 10 USC 2005(d)(3).
- If the distribution is ineligible due to coordination limitations with the American Opportunity Tax Credit (AOTC) or Lifelong Learning Tax Credit (LLTC), up to the amount of expenses that were used to justify the education tax credits.
- The death or disability of the beneficiary.
If the tax penalty is waived, investing in a 529 plan is no worse than investing in a taxable account.
Can you donate the remaining 529 plan money to charity?
There is no special provision to allow account holders to donate the remaining 529 plan funds to charities. Therefore, to donate money to charity, the account holder must take a non-qualified distribution and pay taxes and a tax penalty on the profits portion of the distribution.