21 Mar What can we do with a 529 plan that we don’t need?

Q. My daughter got a full ride scholarship for college. What should we do with her 529 plan?
— Mom

A. Congratulations to you and your daughter!

An offer for a free ride in college is a huge financial windfall.

So what to do with the 529 plan? You have options.

A 529 plan allows you to invest after-tax dollars, which grow tax-deferred, and then they’re withdrawn free of tax when spent on qualified educational expenses.

We’re guessing your daughter is going for a four-year degree. When she’s done with that, if she decides to continue her education with law school, medical school or other advanced degrees, you can use the money for that.

If she doesn’t — and it’s perfectly okay to wait so she has time to set her future path — you have the option of changing the beneficiary of the account to another relative.

Or, you can hold onto the plan, and if you have grandchildren in the future, you can make them the beneficiary. That’s long-term planning, but imaging what a great gift that would be.

The other option would be to take out the money now, then it will cost you. You’d owe federal income taxes on the earnings (which were treated as tax-deferred) and a 10% penalty, also on the earnings.

That can be a costly transaction. So if you don’t need the money for anything yet, hold off and see what the future brings.

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This story was originally published in March 2024.

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.