Plan B for College Savings

With many recent graduates hitting the workforce, some parents may be looking this month to realize that there is still money left in their child’s 529 account and scratching their heads about what they are supposed to do with that money next. Fortunately, there are more options than you may think for handling this.


  1. Change Beneficiaries – you can update the beneficiary on your 529 account at any time. If you have more kids to put through school, you can simply make them the beneficiary to prepare for their upcoming expenses. Or if you’re thinking long term, keep it until the grandkids hit college age.
  2. Change Ownership – Many 529 plans will let you pass off ownership to your child while maintaining the tax deferral in your account. In this way you could use their leftover college money to help your child start saving for their family.
  3. Move Money to a Roth IRA for your beneficiary- This is a new option starting next year, but you can move up to $35,000 per beneficiary into a Roth IRA on their behalf to help them along with saving for retirement. See this article from Fidelity about the process:
  4. Keep the account for yourself – One of the exceptions to the penalty on 529’s if not used for education is disability. If you make yourself beneficiary on the account then you could keep the 529 around as an emergency fund in case you need care due to disability later in life.
  5. Cash out- Definitely the least savvy option, but taxes and penalties only apply to gains on non-educational distributions, not the whole amount like an IRA penalty. If you’re account was invested conservatively the taxes and penalties may not be as bad as you think. Obviously, we would love to find a way to use the account in a more tax advantaged way before considering this option.


If you are facing this dilemma, please don’t hesitate to give us a call so we can help you figure out what move may be best for you.