What Happens to My 529 if My Child Doesn’t Go to College?

For More than Just College

In the last several years, changes have been made to 529s to expand their uses. So even if your child opts not to attend a traditional 2- or 4-year college/university, they can use 529 funds to explore other educational pathways. 529 accounts can be used for:

Expenses associated with certain apprenticeships. Apprenticeships that are registered and certified with the Secretary of Labor under the National Apprenticeship Act qualify.

Career School & Vocational Training If your child decides to pursue technical or vocational training instead of an associate or bachelor’s degree, you may be able to use your 529 funds to help pay if the training is provided through an eligible post-secondary institution. 

K-12 Tuition $10,000 per year can be used for K-12 tuition expenses at public, private, or religious elementary or secondary schools. Keep in mind that while Maine considers K-12 expenses a qualified expense for state tax purposes, other states may treat withdrawals from a 529 for K-12 expenses differently. Please consult your tax advisor for specific advice about using your 529 account for K-12 tuition expenses.

Changing the Beneficiary: A Flexible Option

One of the most straightforward ways to still use your 529 plan if your child doesn’t pursue higher education is to change the beneficiary on your account. You can change the beneficiary of the account to another eligible family member of the current beneficiary such as a sibling, niece/nephew¹, or even yourself. The rules around who is eligible are defined in the federal tax code. If you are considering this option, keep in mind that different rules apply to 529 accounts established by UGMA/UTMA custodians. 

Rolling Over to a Roth IRA

Another appealing option for some families may be to roll over those unused funds from their student’s 529 account to a Roth IRA for that same beneficiary. These unused funds can help jump-start retirement savings for your student. There are some limitations to these transfers:

• The 529 account must have been open for more than 15 years.
• The funds must be rolled over to a Roth IRA owned by the 529 account beneficiary.
• The rollover amount cannot exceed the annual IRA contribution limits (minus any other contributions to any IRA owned by the beneficiary).
• The beneficiary’s income in the year of the rollover must be at least equal to the amount of the rollover.
• The eligible rollover amount must have been in the 529 account for at least 5 years.
• There’s a $35,000 lifetime cap on Roth IRA rollovers for each 529 account beneficiary.
• Roth IRA income limitations are waived for 529-to-Roth IRA Rollovers.

The U.S. Treasury Department and IRS may issue future guidance interpreting these conditions. Any guidance could affect the tax treatment of 529 to Roth IRA rollovers. Consult with a tax professional for more information.

What other options are there for unused 529 assets?

You can leave the money you have invested in your 529 account—indefinitely! Your student may decide to go on to school or training later in life and the money can continue to grow tax-deferred until they are ready to use it! There is currently no time limit on when contributions must be withdrawn. Note: if your student is a Maine resident with the $500 Alfond Grant, those funds must be used by their 28th birthday.

You can pay up to $10,000 in payments for qualified student loans for the 529 account beneficiary and $10,000 toward any beneficiary’s sibling’s qualified student loans. Be aware that these payments may impact a student’s ability to take advantage of student loan interest tax deductions. 

The money is yours–withdraw it and use it however you like. You will need to pay taxes on any earnings in the account, plus a 10% penalty of those earnings. The additional penalty doesn’t apply if:

• The beneficiary receives a scholarship and you withdraw up to the amount of the scholarship from your account.
• The beneficiary attends certain military academies
• The beneficiary becomes disabled.
• The beneficiary dies and the withdrawal is paid to the beneficiary’s estate.
• You use the funds for qualified expenses that allow you to claim the American Opportunity or Lifetime Learning tax credits.

For more on the ways you can use a 529 account, read What Can I Use My 529 College Savings Plan For?

The Bottom Line

529 accounts may be more flexible than you think! Besides being able to use the funds you invested for many kinds of higher education, there are lots of options in case your student’s plans change. Keep these options in mind as your child gets closer to higher education. And if their plans change, you don’t need to sweat it. Your 529 savings continue to serve your family’s financial needs, even if your child’s educational path takes an unexpected turn. Whether your child pursues a less traditional pathway to their future career, or you choose to change beneficiaries on the account, roll over funds to a Roth IRA, or withdraw funds for non-qualified expenses, understanding the options is crucial. By making informed decisions, you can maximize the benefits of your 529 plan and secure a brighter financial future for your family.

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1. Some restrictions apply. You generally are permitted to change the beneficiary to another qualified member of the family, as defined under the Internal Revenue Code, without triggering income tax and 10% additional federal tax. Not applicable for accounts opened under a Uniform Gifts/Transfers to Minors Act registration. ↩︎