Leftover 529 Funds: 5 Surprising Ways to Use Them Beyond Education

With the rising cost of education, it's no surprise that many families turn to 529 plans to save for their children's college expenses. These tax-advantaged accounts offer flexibility and tax-free growth, making them a popular choice for educational savings.

However, what happens when you have leftover 529 funds after your child has graduated? Fortunately, you have several options for using these funds other than education. Here are 5 unexpected ways to put your leftover 529 funds to good use:

1. Save for Retirement

529 plans can be used to save for retirement, and you can withdraw the funds tax-free if they're used for qualified educational expenses or retirement expenses. Retirement accounts offer tax benefits, including tax-free growth and tax-deductible contributions. According to the Investment Company Institute, Americans have more than $23 trillion saved in retirement accounts, including 401(k)s, IRAs, and 529 plans.

By rolling over your leftover 529 funds into a Roth IRA or traditional IRA, you can continue to benefit from tax-advantaged growth. You'll also have access to your funds after age 59½ without paying taxes on the earnings.

Tip: Consider converting your 529 plan to a Roth IRA to avoid paying taxes on the earnings in retirement.

2. Fund a Health Savings Account (HSA)

HSAs are tax-advantaged accounts that are used to pay for qualified medical expenses. Contributions are tax-deductible, and withdrawals are tax-free if they're used for medical expenses. HSA funds can also be invested for long-term growth, offering the potential for tax-free investment returns.

According to the Employee Benefit Research Institute, HSAs have become increasingly popular in recent years, with more than 30 million Americans enrolled in HSA-eligible health plans. By rolling over your leftover 529 funds into an HSA, you can create a tax-advantaged savings vehicle for future medical expenses.

Trick: If you have unused HSA funds, consider using them to pay for eligible medical expenses, such as doctor's visits, prescription drugs, or dental care.

3. Pay for K-12 Education Expenses

529 plans can also be used to pay for K-12 education expenses, including tuition, fees, and other qualified expenses. This can be a great way to use any leftover funds if your child has graduated from college.

Tip: Check with your state's 529 plan to see if you can use funds for K-12 expenses. Some states have restrictions on how 529 funds can be used for K-12 education.

4. Fund a Special Needs Trust

If you have a child with special needs, you may be able to use leftover 529 funds to fund a special needs trust. These trusts are designed to provide financial support for individuals with disabilities without affecting their eligibility for government benefits.

Benefit: Special needs trusts can be used to pay for a variety of expenses, including medical care, housing, education, and other essential services.

5. Donate to Charity

If you don't have a use for your leftover 529 funds, you can donate them to charity. You can withdraw the funds from your 529 plan and donate them directly to a qualified charity. You'll pay taxes on the earnings, but you'll receive a charitable deduction for the amount of your donation.

Trick: Consider donating your leftover 529 funds to a charity that supports education or other causes that are important to you.

Conclusion

Leftover 529 funds don't have to go to waste. By thinking creatively, you can use these funds to meet a variety of financial goals. Whether you're saving for retirement, funding a health savings account, paying for K-12 education, or donating to charity, there are many options available to you.

To make the most of your leftover 529 funds, it's important to understand the rules and regulations surrounding these accounts. You should also consult with a financial advisor to discuss your specific financial goals and determine the best way to use your leftover 529 funds.

Appendix

Table 1: 529 Plan Assets

Source: Investment Company Institute

Table 2: HSA Assets

Source: Employee Benefit Research Institute

Table 3: Qualified Expenses for 529 Plans

Table 4: 529 Plan Contribution Limits

Source: Savingforcollege.com