11 Apr What happens to 529 plan after a full scholarship?
Q. I’ve saved in a 529 plan and now my son got a full scholarship. Can we use any of the 529 plan money for spending money and books and other expenses?
— Happy parent
A. Congrats to your son, and to you!
You can’t use it for “spending money,” but there are plenty of expenses it can cover.
In addition to tuition, your 529 plan can be used to pay for room, board, books, fees, computers, fees and supplies, said Jeanne Kane, a financial planner with JFL Total Wealth Management in Boonton.
She said these are considered qualified education expenses. Make sure to keep good records on how you spend the funds.
“If you have anything left over, you can use the money for graduate school for your son,” Kane said. “There is no age or time limit.”
Another option is to use the money for another family member’s education and you won’t have gift tax consequences, Kane said. Family members are defined very broadly and include a sibling, a future grandchild or even you.
“If you have any younger children, you can use $10,000, per child, per year to pay for public, private, or religious K-12 tuition,” Kane said. “Keep in mind that for K-12 education, you can only use the 529 towards tuition. You can’t use the funds for the additional qualified expenses like you could with for college.”
If you can’t transfer or use the 529 funds for educational purposes, you will pay taxes on the earnings portion when taking a withdrawal, Kane said.
“There is a standard 10 percent penalty for using 529 funds for other than qualified distributions,” she said. “However, because your son got a full scholarship, the 10 percent penalty is waived up to the value of the scholarship.”
Email your questions to moc.p1568545266leHye1568545266noMJN1568545266@ksA1568545266.
This story was originally published on April 11, 2019.
NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.