What happens to 529 plan money if child does not go to college?
One option you would have is to change the beneficiary to another member of the family. That could be the current beneficiary's brother or sister. It could also be the beneficiary's cousin. You could even move the beneficiary up or down the family tree, naming the beneficiary's child, parent, or even yourself as replacement beneficiary.
Another option you have is to take the money back out of the 529 plan for yourself. However, you probably won't want to do this unless you have a real need for the funds. Any earnings growth in the account will be taxable to you at your ordinary income rate plus a 10-percent penalty rate. The fact that the account beneficiary can be changed as many times as you want means that any excess funds in your 529 plan can remain there to be passed down from generation to generation (check to see if your 529 plan has a restriction on how long the account can stay open—many do not).
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Did you know that residents are not limited to investing in their own state’s plan? Another state may offer a plan that performs better and has lower fees. Select your state below to see your state’s plan and other options.
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