5 things you can do with unused 529 plan funds

A common way to save for your kids’ college education is to invest money into a 529 plan. These plans grow tax-deferred and offer a host of educational benefits. But sometimes life changes the plan. Scholarships, choosing a less expensive college, or skipping college altogether can leave families with unused funds. If you find yourself in this boat, you're not alone, and you have options.

1. Leave the money for future education

Leaving the money in the 529 plan can give you more time to consider your options. These accounts don’t have an expiration date, so the funds can sit and continue to grow tax-free until needed. Future uses might include graduate school, technical certifications, or even eligible study abroad programs. This is an especially smart option if your child is still deciding on their long-term educational goals.

Just remember, to avoid taxes or penalties, any money withdrawn must be used for qualified expenses in the same calendar year they occur. Keep all receipts and enrollment documents. Learn more aboutwhat counts as a qualified 529 expense.

2. Change the beneficiary

If your original beneficiary no longer needs the funds, consider switching to another qualified family member. The IRS offers a broad definition of "family," so you could transfer the account to a sibling, cousin, niece, nephew, or even yourself. This flexibility can help another loved one pursue education or career training. If no one in your immediate family needs the funds now, you can also keep the money in the 529 plan and name a new beneficiary in the future, even decades from now. This is a strategic option for families thinking generationally.

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You could assign the funds to a future grandchild or use them to fund educational opportunities for family members yet to be born. For families with loved ones who have disabilities, another option is rolling funds into an ABLE account, up to the annual limit.

Keep in mind: If you change the beneficiary to someone in a younger generation (like a grandchild), you may trigger federal gift tax rules, known as the “generation-skipping” tax. A financial advisor or tax pro can help you navigate this.

3. Pay student loans

Under the SECURE Act of 2019, 529 funds can now be used to repay student loan debt. You can use up to $10,000 per beneficiary—and an additional $10,000 per sibling of that beneficiary—toward loan repayment. This includes both private and federal loans.

If your child has already graduated and is carrying student loan debt, this strategy offers a great way to put those leftover 529 dollars to good use, penalty-free.

4. Roll over to a Roth IRA

Beginning in 2024, the SECURE 2.0 Act allows families to roll unused 529 funds into a Roth IRA in the beneficiary's name. This is a game-changer for retirement planning. Up to $35,000 can be rolled over, subject to annual Roth IRA contribution limits (currently $7,000 per year).

This move is especially attractive if your child has earned income and is just getting started in their career. You’re giving them a head start on long-term savings, and because Roth IRAs grow tax-free, the impact compounds over time. Be sure to check eligibility requirements, including the 15-year holding period for the 529 account.

Curious how 529 plans stack up against Roth IRAs for college savings? Here’s a comparison of 529 vs. Roth IRA to help you decide.

5. Nonqualified withdrawals (last resort)

Withdrawing funds for non-educational use should be your last resort. You’ll owe income tax on any earnings, plus a 10% federal penalty. However, there are exceptions. If the beneficiary receives a scholarship, the amount of that scholarship can be withdrawn penalty-free (though you'll still owe tax on earnings).

Other exceptions include disability, death of the beneficiary, or enrollment in a U.S. military academy. If you qualify under one of these, you can avoid penalties, but you’ll still want to document everything carefully.

Also, keep in mind how 529 withdrawals might affect your financial aid. 

Compare your options at a glance

How to decide: A simple decision flow

If you need help deciding what to do with unused 529 plan funds, use this simple decision flow to help you settle on a plan of action. 

1. Is further education in the cards?

   • Yes → Leave funds or switch beneficiary

2. Student loans to pay off?

   • Yes → Use up to $10k via 529

3. Eligible for Roth IRA rollover?

   • Yes → Start transferring annually

4. None of the above?

   • Consider estate options or as a last resort, withdraw and report

Remember your state rules

Each state has its own rules for 529 withdrawals. Some may reclaim tax deductions if you make a nonqualified withdrawal. Always:

• Track all expenses and receipts

• Save IRS Form 1099-Q

• Keep a record of beneficiary and account details

Want to explore other savings strategies? Here’s a rundown of the different types of college savings accounts to consider.

It all comes down to smart planning

Unused 529 funds are more flexible than ever. Whether you save for grad school, roll into a Roth, or support future generations, smart planning preserves value.

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This blog post is provided "as is" and should not be relied upon as a substitute for professional advice. Some content in this post may have been created using artificial intelligence; however, every blog post is reviewed by at least two human editors.