Welcome to a Back to School edition of FAQs and RAQs!
Here we tackle client questions—some asked Frequently, others Rarely.
FAQ: What are my options for unused money in a 529 Plan?
Despite the high cost of college tuition, this scenario happens more often than you’d think! Students sometimes receive large scholarships, or go a different route than college, leaving parents with an overfunded 529 plan.
Don’t worry: the money’s not wasted. Here are some options depending on your situation:
1. Switch the beneficiary. The funds don’t need to be spent on one person. You can switch the beneficiary to siblings, cousins--even yourself!
2. Use it for grad school or trade programs. 529s aren’t just for undergrad.
3. Roth IRA rollover. Thanks to SECURE Act 2.0, you may be able to roll over unused funds into a Roth IRA for the beneficiary. Many restrictions apply, however!
4. K-12 tuition and supplies. New rules allow parents to use 529 distributions for qualified school supplies and private school tuition--again, subject to important limitations to be aware of.
5. Cash out! Maybe not ideal, but an option nonetheless. Withdrawing the contributions is generally tax-free, but the earnings face taxes and penalties.
Bottom line: 529s are flexible. Don’t think of leftover dollars as wasted. They can still work hard for your family!
As always, consult your tax advisor based on your unique situation.
RAQ: Suppose I have an internship or other extracurricular I’m really interested in. What should I do if it doesn’t pay, but I need the money?
If a scenario like this happens, don’t panic – you have options you can take advantage of. Many colleges provide programs where you can request funding for an unpaid internship, often giving out amounts worth several thousand dollars. Just contact your career advisor, and they should be able to give you details.
On the other hand, while it may be difficult, passing up on the opportunity isn’t necessarily the end of the world. For instance, you could wait for another opportunity that fits your needs to come up in the future. Meanwhile, for the time being, you could both work a part time job and also seek out another volunteering/club opportunity that still gives you experience in your desired field while being a lower time commitment.
In either case, never stop researching new opportunities – there’s always something out there that can fit your needs! Moreover, in today’s job market, having many different experiences always you to be flexible as you move throughout your career, so even if something isn’t your number one choice, it’s certain to be of some help down the road.
Have a question?
Drop us a line at carlsongroup@rwbaird.com. We’d love to hear from you!
All investments carry risk, including loss of principal. Past performance is not a guarantee of future results. Baird does not give tax advice. Please contact your tax preparer.