With the ever-rising cost of higher education, 529 plans offer parents a smart way to start saving for college early. By contributing when a child is young, families can take advantage of tax-free compounding as the funds grow over time, sometimes more than expected, depending on market performance.

Yet, despite the steep price tag of education, some families find themselves with leftover money in a 529 plan. This can happen due to oversaving; unexpected scholarships; a child choosing a different, cheaper educational path than expected; or actual costs turning out lower than anticipated. In these situations, families often wonder what happens to unused 529 plan funds—and what their options are moving forward.

If you find yourself with unused 529 plan money, don’t worry — there are several options to consider. This guide will walk you through what you can do with those unused funds, helping you avoid unexpected taxes or penalties while making the most of your savings.  Before taking action, be sure to consult with a financial advisor to avoid potential tax consequences or missed opportunities.

Use the 529 Yourself

If your child doesn’t need the 529 plan funds, you don’t have to let them go to waste—consider using them yourself. As the account owner, you can use the money to pursue an advanced degree, switch careers, or earn a new certification to boost your current profession. You might also choose to keep the funds for retirement, when you’ll have more time to explore personal or educational interests. Just remember: The courses must be taken at an eligible institution for the expenses to remain qualified and tax-free.

Change the Beneficiary of the 529 Plan

One of the most flexible features of a 529 plan is the ability to change the beneficiary. If your child won’t use the funds, you can transfer the plan to another eligible family member (see the list below) without triggering taxes or penalties. Just be aware: Changing the beneficiary to someone in a younger generation, such as a grandchild, may have gift tax implications, especially for larger balances. While the current lifetime gift tax exemption is $13.99 million per donor (as of 2025), future legislation could reduce that amount. This strategy can be a powerful way to keep the tax-free compounding benefits of the 529 plan working for your family’s future. A plan that started for your child could eventually help fund your grandchild’s education.

People who are considered members of the account owner’s family:

• Spouse
• Son, daughter, stepchild, foster child, adopted child, or descendant of any of these family members
• Son-in-law, daughter-in-law
• Siblings or Stepsiblings
• Brother-in-law, sister-in-law
• Father-in-law, mother-in-law
• Father or mother or ancestor of either; stepmother or stepfather
• Aunt or uncle, or their spouse
• Niece or nephew, or their spouse
• First cousin or their spouse

Alternative Uses for Unused 529 Funds

If you’re looking for what to do with leftover 529 money, here are several additional possibilities:

Room and Board, Rent, and Living Allowances

If your child is still in school but living off campus, 529 plan funds can still be used—up to a limit. Qualified education expenses include room and board, whether the student lives on campus or off, as long as they’re enrolled at least half time. For off-campus housing, expenses must not exceed the school’s published cost of attendance for room and board. Be sure to keep records—receipts, lease agreements, and food costs—since documentation is key when using 529 funds this way.

Computer Equipment and Internet

You can use 529 plan funds to cover technology-related expenses, such as a laptop, a printer, software, and internet access—provided these items are used primarily by the beneficiary while enrolled in school. There’s no dollar limit on these expenses, but they must be directly related to education. Note: Equipment used for gaming or noneducational hobbies does not qualify.

K-12 Education

Since 2018, 529 plans can be used for up to $10,000 per year, per beneficiary, toward tuition at public, private, or religious elementary and secondary schools. This opens the door to using 529 funds much earlier than college and can be helpful if you have younger children or grandchildren attending K–12 institutions.

Vocational Schools

529 plans aren’t just for traditional four-year colleges—they can also be used at many vocational and trade schools across the country. As long as the institution is eligible to participate in federal student aid programs, it qualifies for 529 plan distributions. The list of vocational professions is long and includes licensed practical nurse, dental hygienist, chef, real estate agent, HVAC technician, air traffic controller, interior designer, programmer, and heavy equipment operator.

Apprenticeships

Thanks to changes introduced by the SECURE Act of 2019, 529 plan funds can now be used to pay for qualified apprenticeship programs. This includes tuition, fees, required books, supplies, and equipment—making 529 plans even more versatile for students pursuing skilled trades. The student must be participating in an apprenticeship program registered and certified with the Secretary of Labor under Section 1 of the National Apprenticeship Act. Careers that require apprenticeships include solar installer, electrician, pharmacy technician, commercial driver, fire system installer, carpenter, and plumber. For students who prefer learning on the job or pursuing a less traditional educational path, using a 529 plan for an apprenticeship can be a smart, tax-free way to gain valuable skills and avoid student debt.

Pay Down Student Loans

The SECURE Act of 2019 also expanded the list of qualified 529 plan expenses to include student loan repayment. You can now use up to $10,000 per beneficiary (lifetime limit) to pay down federal or private student loans. Even better, this benefit can also apply to the beneficiary’s siblings—so if your 529 plan has leftover funds, you don’t need to open a separate account to help another child with their student debt. As long as the total repayment per person doesn’t exceed $10,000, you can use 529 funds tax-free for this purpose. This option provides flexibility for families navigating the financial burden of student loans and can help reduce interest payments over time.

What if You Forgot to Take a Distribution?

If, after reading this article, you realize that you did not know about a qualified expense that you could have used 529 plan funds to cover, you can take a distribution after the fact to reimburse yourself for the expense. However, the distribution must be made in the same year that the expense was incurred. For example, if you bought a new laptop for your son in January 2025 to be used while he was attending college, you have until December 31, 2025, to take the distribution from the 529 plan for it to be considered a qualified expense.

Transfer the Funds to a Roth IRA

As part of the SECURE 2.0 Act, which passed at the end of 2022, 529 plan beneficiaries now have the ability to roll a portion of their 529 plan into their Roth IRA, with some strict guidelines. Some of these rules include:

• There is a $35,000 lifetime limit per beneficiary, which may be indexed to inflation in future years.
• The 529 account must have been open for at least 15 years prior to any transfers to a Roth IRA.
• Any contributions or earnings from contributions in the past five years cannot be transferred.
• 529 plan funds can be transferred to a Roth IRA that is in the name of the 529 plan’s beneficiary.

This is a great planning opportunity recently introduced by the IRS that must be carefully exercised. Read more here to learn more of the specific rules and guidelines for a 529 to Roth IRA transfer to see if you’re eligible.

Roll Over the Account to an ABLE Account

If your child has a disability, another meaningful use for unused 529 plan funds is to roll them into an ABLE (Achieving a Better Life Experience) account. Like 529 plans, ABLE accounts allow money to grow tax-free and be withdrawn tax-free—provided the funds are used for qualified disability-related expenses. These qualified expenses include education, housing, transportation, healthcare, assistive technology, employment training, and legal or financial services. ABLE accounts are specifically designed to support individuals with disabilities while preserving eligibility for important government benefits like Medicaid and Supplemental Security Income. There is a limit on how much you can roll over from a 529 plan to an ABLE account each year. The rollover is capped at the annual gift tax exclusion limit, which is $19,000 in 2025. Additionally, the beneficiary of the 529 plan must be the same as the beneficiary of the ABLE account. To learn more or confirm eligibility, visit the Social Security Administration’s website.

Take a Nonqualified Distribution

If you find that none of the options above are suitable for your situation, you can liquidate your 529 plan; however, if you do this, any earnings in the account will be subject to a 10% penalty and federal and state income taxes. It is important to note that this applies only to the earnings in the account and not the contributions made over time. For example, if you contributed $100,000 to a 529 plan and the investments in the 529 plan earned $20,000 while invested, only the $20,000 is subject to income tax and the 10% penalty.

Earnings are calculated on a pro rata basis with each distribution, and all 529 plan custodians keep track of the earnings related to the remaining balance in the 529 plan over time. With each distribution, some of it comes out as contributions and some of it comes out as earnings. So if the account was totally liquidated and prior distributions had been made, the final distribution wouldn’t include all the earnings that accumulated in the 529 plan over time.

There are certain circumstances where the 10% penalty is waived: if the beneficiary dies, becomes disabled (defined as the beneficiary not being able to do any substantial gainful activity because of a physical or mental condition), or attends a U.S. military academy, or if some/all of the beneficiary’s qualified education expenses were used for purposes of the Lifetime Learning Credit or American Opportunity Credit. If the 529 plan beneficiary received scholarships, veterans’ educational assistance, employer-provided educational assistance, or other nontaxable payments (other than gifts or inheritances) for educational assistance, then the penalty would not apply to distributions up to the total of these items.

Conclusion

Before making any decisions with regard to your unused 529 plan balance, consider working with a financial advisor. There are many different directions you could take with the money that can help you achieve your goals, and it will be important to be strategic to avoid penalties or increased taxes. If you need help with integrating tax savings into your overall financial plan, reach out to one of our advisors at (603) 589.8010.