How to Use Leftover Money from 529 College Savings Plans

As families navigate the rising costs of college education, many are seeking effective ways to manage unused funds in their 529 college savings accounts. Financial advisor Cherry highlights several strategies for reallocating these funds, including rolling over money into a Roth individual retirement account (IRA) in the beneficiary's name. This option, made possible by the Secure Act 2.0, allows families to transfer funds without incurring penalties or taxes, providing a valuable opportunity for long-term savings. Another viable option for families is changing the beneficiary of the 529 plan. If the original beneficiary is unlikely to use the remaining funds for further education, parents can designate another qualified family member as the new beneficiary. This flexibility ensures that the savings can still benefit family members who may need financial assistance for their educational pursuits. Additionally, families can utilize leftover 529 funds to pay off student loans. Under the Secure Act of 2019, up to $10,000 per year can be withdrawn for this purpose for each beneficiary and their siblings. This provision offers a practical solution for managing educational debt, allowing families to redirect funds toward immediate financial needs. Lastly, if a child receives scholarships, families can withdraw an equivalent amount for nonqualified expenses without penalties. This feature provides immediate access to funds, enabling families to use the money for current living expenses or to invest in other savings accounts, thus enhancing their financial flexibility.