CWG Insight Series: How to Use Excess 529 Funds

529 plans are a great way to save for college, but what happens if you end up with excess funds? Here are some options for using leftover 529 funds:

• Transfer the funds to another immediate family beneficiary. This is the most common option, and it's a good choice if you have another child or grandchild who is planning to go to college.

• Change the beneficiary to a qualified relative. This could include a niece, nephew, cousin, or even a grandparent. However, keep in mind that the funds must be used for qualified education expenses within 10 years of the change in beneficiary.

• Pay down student loans. Up to $10,000 of 529 plan funds can be used to pay down qualified student loans without incurring a penalty.

• Rollover the funds to a Roth IRA. Starting in 2024, you will be able to roll over up to $35,000 in 529 funds to a Roth IRA. This is a tax-free option, but there are some restrictions. The 529 plan must have been open for at least 15 years, and any contributions made in the past five years (or the earnings on those contributions) cannot be rolled over into a Roth IRA.

• Pay the taxes and penalty. If you don't want to use the funds for education or retirement, you can withdraw them and pay income tax on the earnings. You will also be subject to a 10% penalty on the earnings, unless you meet certain exceptions, such as if the beneficiary becomes disabled.

The best option for using excess 529 funds will depend on your individual circumstances. If you're not sure what to do, it's a good idea to talk to your Crown advisor as they can guide you to the right choice.