So, your eldest child has graduated from college – congratulations to your family!

However, you have two more children – one will be applying for college next year, and the youngest will be two years after that.

Happily, you began saving for their educations with contributions to a 529 Plan account for each of them.

And your eldest had the grades to get a significant scholarship, leaving an untouched balance in their 529 Plan account.

But your younger two may not have grades quite high enough to qualify for scholarships at the same level. Therefore, they will need more of their college expenses to be covered by their 529 Plan accounts.

How do you access the balance of your eldest child’s 529 Plan account to help their younger siblings get their college education? Or for another necessity or desirable purpose?

There are various ways, partly due to changes made to the rules governing 529 Plans under the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 and SECURE 2.0, enacted in 2022.

Some of these include:

Rollover Funds to Another 529 Plan Account

You can roll a portion or all of the untapped balance in your eldest child’s 529 Plan account to that of your next eldest child, or your youngest’s account.

Only one rollover from a single beneficiary’s account (each of your children should be the beneficiary on the 529 Plan account you opened for them; only one beneficiary per 529 Plan account is permitted) per 12-month period is allowed.

Therefore, you may want to roll half of the balance in your eldest’s 529 Plan account to that of your next child this year, and the remaining balance to the 529 Plan account of your youngest next year.

You can make one transfer per beneficiary within a 12-month period without incurring tax consequences.

But any additional transfers (again, per beneficiary) within that 12-month period will be considered a non-qualified distribution, and taxes will be imposed on the portion of the distribution that comes from investment growth, plus a 10% penalty on that same portion.

Help Pay For K-12 and Secondary Tuition

The SECURE Act included a new provision allowing parents to use 529 Plan account funds to pay for the beneficiary’s private elementary, middle school, and high school tuition, up to a limit of $10,000 per year per account and beneficiary.

So, once you transfer unused 529 funds to your younger children, that money is available for K-12 and high school tuition.

Help Fund Postgraduate Education

If your eldest wants further education in their field, and you’re willing, the excess funds in their 529 Plan account can be used to help pay for their postgraduate studies, housing, meals, books, and all other eligible expenses – just as with their 4-year college program.

This is an easy option to exercise, as no changes are required to the existing 529 account.

Fund a Roth IRA for the Account Beneficiary

SECURE 2.0 created the option of transferring your child’s unused 529 Plan funds to a Roth IRA in that child’s name, provided the account has been open for 15 years or more.

The amount that can be transferred to a Roth IRA is limited to $35,000 in total and must be made in increments amounting to no more than the year’s Roth IRA contribution limit ($7,000 for 2025).

Additionally, any transfer of 529 account funds to a Roth IRA must not exceed the amount the beneficiary earns during the transfer year. So, it may be best to wait until the beneficiary has obtained a job.

There’s one option we don’t usually recommend – but it may be the right choice for your family:

Change the 529 Account’s Beneficiary

While you can always change the 529 Plan account’s beneficiary, provided the new beneficiary is an eligible family member. The eligible family member list is pretty comprehensive; siblings certainly qualify.

However, this may not be a good idea if you have a specific idea that you’d like to make a single contribution to a Roth IRA for the original account beneficiary.

While the IRS has not issued clarifying guidance on whether a 529 account open for 15 years or more needs to retain the same beneficiary between the opening of the account and the Roth IRA transfer, it’s often wise to err on the side of caution – and when dealing with the IRS, this goes double!

So, there are a lot of options to choose from when you are fortunate enough to have excess 529 funds once your child’s postsecondary education is complete.

But which is the best for your family?

If you have questions, we invite you to consult with us. Rigby Financial Group has helped clients with decisions affecting 529 Plan accounts for many years. And our specialty is helping you devise a strategy that’s right for you and your family. You are unique, your family is unique, and we celebrate that by devising custom-tailored strategies and solutions that fit your needs, goals, and dreams for your family’s future.

Please click here to email us directly – let us help you chart your family’s course with confidence and joy. That’s what we’re here for!

Until next time –

Peace,

Eric