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The Flexibility of 529 Accounts


The Flexibility of 529 Accounts

Section 529 accounts, also referred to as qualified tuition programs (QTPs), have adapted over the years to become the “go-to” savings vehicle for education. The 2017 Tax Cuts and Jobs Act (TCJA) provided a significant change – allowing parents to take tax-free withdrawals from a 529 plan to pay for tuition at K-12 schools (capped at $10,000 per year per beneficiary). A 529 plan’s only true competitor, Coverdell Educations Savings Accounts (ESAs), have restrictive contribution limits and income thresholds. As a result, 529 plans have grown significantly in popularity.

As THOR continues to serve emerging wealth clients, we often field questions about what options they have if their child does not attend college or has excess funds in the account. This blog will highlight the options available to them.


Does not attend college

  • First of all, if your child does not attend college, you can access the funds. However, you will be subject to federal income taxes on the investment gains as well as a 10% penalty (since the funds were not used for qualified education expenses). We would advise using this route only as a last resort as there are better options available to you.
    • If your child receives a scholarship, you are able to withdraw the amount of the scholarship without penalty.
  • If your child does not opt for the “traditional” college route, 529s can be used to pay for the same type of expenses at trade schools or apprenticeship programs.
  • Lastly, you can keep the funds in the account and change the beneficiary to another family member of the beneficiary. Here is a list of the qualifying relationships – you can see the list is quite inclusive!

Excess Funds

Below are options if there are or will be excess funds in the 529:

  • Change the beneficiary (mentioned above).
    • A powerful strategy we outline for our clients is to keep the account in your child’s name and wait for them to have children of their own. At that time, you can change the beneficiary to your grandchild. This can be a powerful way to gift money toward your future grandchildren’s education as it gives the funds in the account double the amount of time to compound!
  • Use the funds for graduate school.
  • Up to $10,000 (per beneficiary) can be used to pay off student debt.
  • Rollover to an ABLE account for disabled beneficiary or beneficiary’s siblings.
  • Starting in calendar year 2024 – the SECURE 2.0 Act will allow excess 529 money to be rolled over to a Roth IRA for the beneficiary. If electing this route, there are some extra limitations to be cognizant of:
    • The 529 account must have been open for 15 years, with the same beneficiary.
    • There is a $35,000 lifetime cap.
    • Annual rollover amounts count toward and cannot exceed the annual contribution limit for IRAs ($6,500 in 2023). Meaning you can only rollover $6,500 per year until you reach the lifetime cap.
    • Any 529 contributions made in the previous 5 years are excluded from being rolled over to the Roth IRA.


In summary, we would like to remind you that although the college landscape can change in the future, the true value of 529s is the long-term earning potential. The flexibility these accounts afford you should give you the confidence to save to them early and often.


If you have questions and would like to talk with us further, please call us at 513-271-6777. For more THOR reading, click here to go to the Blogs and Market Updates section on our website.

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Written by

Evan Perduk, CFP®, EA

Evan joined THOR in May of 2020 upon graduating from the University of Cincinnati. As an Associate Wealth Advisor, he works directly with clients and creates holistic, customized financial plans. In addition, he is also a member of THOR’s Niche committee, responsible for developing a unique client experience, and the New Business Development committee, focused on marketing and growing THOR’s brand.

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