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Are you looking for ways to offset the increasing cost of college education? If so, you’re not alone. Many families have turned to 529 college savings plans as a strategy to save for their children’s education. These accounts allow families to set aside money for college expenses while taking advantage of tax breaks and compound interest.
According to certified financial planner Preston D. Cherry, founder and president of Concurrent Financial Planning in Green Bay, Wisconsin, starting to invest in a 529 plan at a child’s birth gives you 18 years to make money on top of money. This can help you outpace the inflation of college prices.
At Extreme Investor Network, we believe in providing you with unique information and strategies to help you make the most of your finances. Did you know that families have invested $441 billion in 529 accounts as of the end of 2023, a 16% increase from the previous year? Additionally, 35% of families used 529 funds to pay for college in 2024, covering an average of 9% of the cost of attendance.
What to do with leftover 529 funds?
But what happens if you have leftover 529 funds? At Extreme Investor Network, we understand the importance of maximizing your savings and investments. Here are four ways to make the most of your leftover 529 funds:
1. Roll funds into a Roth IRA
Thanks to Secure Act 2.0, savers now have the ability to roll money from a 529 plan to a Roth IRA, free of penalties or income tax. This new measure gives Americans more flexibility with their 529 accounts, allowing them to invest in their future retirement.
It’s essential to note that to qualify for a transfer to a Roth IRA, the 529 account must have been open for 15 years, and there is a lifetime cap on 529-to-Roth rollovers of $35,000.
2. Change the beneficiary
If you believe the original beneficiary of the 529 plan will not need the leftover funds, you can change the account beneficiary to another “qualified family member.” This option allows you to reallocate the funds without triggering withdrawal fees or tax penalties.
3. Pay off student loans
Another way to use leftover 529 funds is to pay off student loans. Under the Secure Act of 2019, savers can use funds for this purpose, up to $10,000 per year for each plan beneficiary, as well as for each of the beneficiary’s siblings.
4. Withdraw the money outright
As a last resort, families can choose to withdraw 529 assets outright. Contributions can be withdrawn tax- and penalty-free, while any earnings not used for qualified expenses may be subject to income tax and a 10% penalty. This option allows families to have immediate access to the money for other purposes.
At Extreme Investor Network, we believe in providing you with valuable information and resources to help you make informed financial decisions. Stay tuned for more expert advice on personal finance and investing.