Tags: Retirement | 529 plan

What Should You Do When You No Longer Need Your 529 Plan?

By    |   Tuesday, 28 Apr 2015 10:46 AM

A 529 plan, a college savings account that is exempt from federal taxes can help parents finance their children's higher education. But what should you do when you no longer need your 529 plan?

As soon as the beneficiary of the account finishes education, it may seem like a good idea to close the account, but before you think you no longer need the money, it is important to consider a couple of things.

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A 529 plan which still has money in it after education expenses are completed can be closed, but will incur some fees. Those fees include any income taxes that would normally be due on the amount of growth in the account, as well as a 10 percent penalty on the earnings.

Instead, it may be smarter to consider rolling the money to another family member. That will save the tax fees, and keep the money for any future educational expenses. The beneficiary can also save the money for the next generation.

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According to the IRS, a family member can include siblings, but also any other family members, such as a spouse, the beneficiary's own children or other descendants or ancestors. Step-family members are also included.

There are some exceptions for withdrawal penalties. These exceptions include attendance at a U.S. Military Academy, permanent disability or the death of the original beneficiary.

If you still want to close your 529 plan, contact the plan manager listed on the account. For tax purposes, make sure you get a 1099-Q, and file a Form 5329 at tax time.

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A 529 plan, a college savings account that is exempt from federal taxes can help parents finance their children's higher education. But what should you do when you no longer need your 529 plan?
529 plan
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2015-46-28
Tuesday, 28 Apr 2015 10:46 AM
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