[USER]

I may have over-saved in a 529 account. My daughter ended up attending a cheap public in-state university that’s less than 10 miles away from home, and her sibling will probably do the same.

I know there are many ways to avoid the penalty, like rolling some into a beneficiary’s Roth IRA (subject to the same rules).

Or maybe my 50-year-old self can go back to school in retirement (and party with youngsters like you see in the movies).

The account has grown significantly, with the growth almost twice the principal.

Now, I’m daydreaming about using whatever is left over for home renovations, buying a fancy car or even European vacations.

Question: do you think taking a non-qualified distribution and absorbing the 10% penalty still worth it?

[Cica]

Maybe your kids will have kids!! Imagine being able to fund all your grandkids’ school too! What a relief and a gift to your children!

[Jenny]

Maybe the kids will go to grad school. And $35k can be converted into Roth IRA.

[Dave]

My parents have used my excess 529 funds to save for my kids. It’s a beautiful legacy I intend to pass on as well.

[Tamara]

I would hold onto it until both of your kids are out of school. There are great ideas in this post, but I came in here to say that.

[Dillon]

Up to you if the juice is worth the squeeze.
Just don’t forget the withdrawals of the growth will be counted as income and taxed as such at federal level, state, etc.

Some states like California have an additional penalty.

[Shirley]

Any chance one or both kids will go to grad school, med school or law school?

Could you use the excess 529 funds for that?

[Lori]

Did you consider using the funds to pay for her housing? If she lives at home, there is a calculation on the college’s website for off-campus housing and you can pull those funds out up to that amount.

Reinvest them for other purposes.

Keep good records in a spreadsheet for tax forms times, but that’s one way to spend down the funds within the rules.

[Kristin]

I would hold out to see if either of them want to pursue a MS, or study abroad. You can also pay for living expenses (rent, utilities, groceries) up to the COA of the university if either of them live off-campus.

I know of someone whose child lived at home and they charged them rent, which was paid out of their 529.

You would have to investigate to determine whether this is actually an acceptable expense, but her accountant assured her that if the rent charged was reasonable for the area and didn’t exceed the COA provided by the college, it was perfectly acceptable.

She also reimbursed herself for groceries/utilities up to the COA.

This might be a way for you to recover some of the money without incurring the penalties… but, please do your own due diligence, because I am not an accountant!!

[Author]

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