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Put Your Leftover 529 Funds to Use

May 17, 2018 BY Mark Haser

One of the biggest challenges that our clients have with saving for college is determining how much to save each year. And because future college costs are difficult to predict, you will likely find your 529 account with either leftover money or not enough money by the time your child’s college years are coming to an end. So, what do you do in the event of a surplus of funds?

The most common guidance is to transfer the funds to another beneficiary or wait and see if your child attends graduate school. But what happens when all of the kids are done with all of their schooling? Before you decide to take non-qualified withdrawals, see if you can put the funds to use on yourself.

We spoke with a few different 529 plan administrators and uncovered that you can use 529 plan funds to pay for professional education coursework at a qualifying institution, provided you meet two major criteria:

  1. You must make payment directly to the institution. So, for example, if a third-party company hosts the continuing education course at the institution and you make payment to the third party, this would not be a qualified use of the funds.  The Utah 529 recommended keeping your receipts so you can show payment to the school in the event of an audit. Remember, a qualifying institution is one that participates in federal grant/loan programs.
  2. You must name yourself as the beneficiary on the account from which you use the funds. This means you will need to fill out a change-of-beneficiary form and switch the beneficiary from your child’s name into your name (you can switch beneficiary names back and forth on a 529 account without any limit so long as each beneficiary is an immediate family member).

This can amount to real savings for professionals across various occupations. For example, doctors are required to attain a certain number of continuing medical education (“CME”) credits every year (the exact number varies by state). Here in Boston, a two-day weekend course at Harvard Medical School can run anywhere from $400 to $800 for 14 CME credits.[1] You can imagine how quickly these courses add up.

Bear in mind, however, that the primary financial benefit from a 529 plan is the fact that your money grows tax-sheltered over a period of time and you can withdraw the money tax free for a qualified educational payment. The key here is that if the money is not in the account for very long, then you won’t reap much benefit (contributions are not tax-deductible). So, while funding and withdrawing from your own 529 plan on an annual basis does not make much sense, this could certainly be a great use of any leftover funds from a child’s 529 plan.

Still have questions about how to best use your 529 plan funds? Give us a call or send us an email and we’d be happy to help!

[1] https://cmecatalog.hms.harvard.edu/

Mark Haser, M.B.A., is a financial planner at Artemis Advisors. His areas of interest include retirement and education planning, risk management, and cash flow management.

Artemis Financial Advisors