What To Do With College Savings if Your Child Doesn’t Need To Use It

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As parents, we often envision a traditional four-year college journey for our children, diligently saving for years to make this dream a reality. But what happens when your child decides to take a different path? Here’s a guide to navigating the unexpected and ensuring that your hard-earned savings still contribute to your child’s future.

Understanding 529 Plans

529 plans are versatile savings accounts designed specifically for educational expenses. While traditionally associated with college tuition, these plans can cover a variety of educational paths. If your child decides against a traditional college route, you have several options to consider.

Alternative Educational Paths

• Trade and vocational schools: Your 529 can fund qualified expenses at trade schools and vocational programs. These institutions offer valuable training in various fields, from technology to cosmetology, according to Edward Jones.
• K-12 private education: Up to $10,000 per year from a 529 plan can be used for tuition at private, public, or parochial schools, from kindergarten through high school, per Charles Schwab.

Paying Off Student Loans

Recent changes now allow you to use up to $10,000 from a 529 plan to pay off student loans for the beneficiary or their siblings. This can be a significant relief if your family is managing student debt (Edward Jones).

Changing Beneficiaries

If your child doesn’t need the funds, you can change the beneficiary to another family member, including siblings, cousins, or even yourself if you’re considering further education, per Charles Schwab. This flexibility ensures that the funds benefit your family’s educational needs, no matter how they evolve.

Rolling Over to a Roth IRA

Starting in 2024, the SECURE 2.0 Act allows for rolling over unused 529 assets to a Roth IRA for the beneficiary, subject to certain criteria and limits. This can be a powerful way to shift educational savings into retirement savings without penalties, as Edward Jones outlined.

Broad Takes on Surplus 529 Plan Funds

If you find yourself with a surplus in a 529 plan, here are some general investment strategies to consider.

• Assess and adjust: Regularly review your investment portfolio to ensure it aligns with your current financial goals and market conditions.
• Diversification: Spread your investments across various assets to mitigate risk. If you’re reallocating 529 funds, consider different sectors and investment types.
• Consult a professional: Financial advisors can provide personalized advice based on your unique situation, helping you make informed decisions about reallocating or investing the funds.
• Long-term perspective: Consider how your investment decisions fit into your long-term financial plan, including retirement and any future educational needs for your family.

Keep Calm and Be Thoughtful About Investing the Surplus

Discovering that your child won’t need their college savings as initially planned isn’t the end of the road; it’s merely a new path. With the flexibility of 529 plans and a thoughtful approach to investment, you can ensure that these funds continue to support your child’s success, whatever direction they choose.

Editor's note: This article was produced via automated technology and then fine-tuned and verified for accuracy by a member of GOBankingRates' editorial team.

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