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Leftover 529 plan money – what to do?

Friday, December 23, 2016   (0 Comments)
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NJmoneyhelp.com 12/23/16

 

Q. My youngest will finish college this year and I will still have $48,000 in a 529 plan. How can I decide if I should withdraw the money for fees and taxes, or leave it in for grandchildren I may or may not have?
— Flush with cash?

A. You have a lot of options for your extra 529 plan money.

You don’t necessarily need to reserve those funds for grandchildren, said Dean Shah, a certified financial planner with Stonegate Wealth Management in Oakland.

Shah said if there is anyone in the family considering college or graduate school, you could use the money for those students.

Qualified family members include children, parents, spouses, siblings, first cousins, nieces and nephews, aunts and uncles, and 529s do not have an age limit or requirement, Shah said.

“In most cases, changing beneficiaries between qualified family members won’t trigger penalties or tax ramifications, though we recommend consulting your tax preparer or a 529 plan representative for the applicable state, prior to making any changes,” Shah said.

On what you should do with the money, the answer depends on whether you need the cash and your tax bracket.

“If 529 funds are withdrawn and not used for qualified education expenses, not only are gains recognized as ordinary income, but there is also a 10 penalty,” Shah said. “If you need cash for current expenses, the penalty and tax hit could be worth it.”

If you’re in a high tax bracket or you don’t need the cash, it would make more sense to hold on to the funds for now, he said.

“You can always change your mind in the future if circumstances change or if your children decide to not have kids,” he said.


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