If your kid doesn't spend their 529, what will you do with that money?

[Anonymous]

Saving any 529 balance for grandkids. We have enough other sources of funds to help kid with a downpayment or whatever if needed. If something happened to us, kid would get a large inheritance.

We can also move money between the kids' 529 accounts if someone decides to go to law/med school, which could happen, albeit not necessarily likely. There's more than enough in the 529s for all of undergrad at a top school plus some grad school.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Move whatever I can to Roth IRAs for them and leave the rest in the 529 for them to use for any future grandkids.

This exactly.

+2

OP, if it were my son I would tell him that the money would be available to him for grad school if he doesn't use it all, and to fund his Roth the first several years he is working. But I would not tell him he could cash the whole thing out as some kind of incentive bonus to go to a cheaper school - it's my money that I've saved, earmarked for education. Not his money that he can spend on either an expensive school or a cheap school and a car, for example.

[Anonymous]

When I got a full ride in the spring before freshman year my dad had it cashed out, taxes paid and Ferrari in the garage before I even moved into the dorm.

[Anonymous]

Anonymous wrote:Is it theirs to spend? With conditions or without?

No. It’s mine. Hookers and blow, baby. I deserve it.

[Anonymous]

Anonymous wrote:I think this depends a little on whether you have extra because you ended up able to cash flow some expenses (but can still withdraw from the 529 tax free) or whether you saved more than the total cost of all your expenses.

OP here, if he picks one of the automatic scholarships, then the total cost, even if we provide all his spending money, will be less than the amount in his 529, by more than the $35K he can roll into a Roth.

[Anonymous]

For those with high assets, saving 529 for grandkids could end up involving a heck of a lot of tax-free growth.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I think this depends a little on whether you have extra because you ended up able to cash flow some expenses (but can still withdraw from the 529 tax free) or whether you saved more than the total cost of all your expenses.

OP here, if he picks one of the automatic scholarships, then the total cost, even if we provide all his spending money, will be less than the amount in his 529, by more than the $35K he can roll into a Roth.

I think the Money and Finances forum is a better place for this question, OP.

[Anonymous]

Wait to see if they go to grad school, then maybe do the $35k Roth conversions, then gift it to grandkids. If I don't get grandkids, I'd gift them to grandnieces and nephews. Some companies market educational trips that qualify for 529 plans so I might use some.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I think this depends a little on whether you have extra because you ended up able to cash flow some expenses (but can still withdraw from the 529 tax free) or whether you saved more than the total cost of all your expenses.

OP here, if he picks one of the automatic scholarships, then the total cost, even if we provide all his spending money, will be less than the amount in his 529, by more than the $35K he can roll into a Roth.

I think the Money and Finances forum is a better place for this question, OP.

I'm not asking what we're legally allowed to do. I know that. I'm really asking if people think of it as the kid's money, or as the parents' money, or as something else. Or is it something in between?

For example, if I think of it as my money that I was willing to give to him for college and no other purpose, then I could turn around and tell his brother he now has a bigger budget, or I could give it over the years as Christmas gifts to my nieces and nephews. Or I could fund my own Roth. Or I could withdraw it, pay the penalty, and renovate my ktichen.

On the other hand, if we think of it as his money, then can he withdraw it, pay the penalty, and make a down payment on a house. Or he can withdraw it, pay the penalty, and become a ski bum. Or he can save it for his kids, or his eventual spouse to go to college or grad school. My financial advisor also says he could use it to purchase a car to get back and forth to campus and internships, and then he'd still have it after graduation.

Or is there a middle ground where I say first we see if your sibling needs it, then the rest is yours. Or, we keep it in the 529 to be split between all the grandchildren I end up with. Or you can withdraw it for a down payment, but not for skiing.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I think this depends a little on whether you have extra because you ended up able to cash flow some expenses (but can still withdraw from the 529 tax free) or whether you saved more than the total cost of all your expenses.

OP here, if he picks one of the automatic scholarships, then the total cost, even if we provide all his spending money, will be less than the amount in his 529, by more than the $35K he can roll into a Roth.

I think the Money and Finances forum is a better place for this question, OP.

I'm not asking what we're legally allowed to do. I know that. I'm really asking if people think of it as the kid's money, or as the parents' money, or as something else. Or is it something in between?

For example, if I think of it as my money that I was willing to give to him for college and no other purpose, then I could turn around and tell his brother he now has a bigger budget, or I could give it over the years as Christmas gifts to my nieces and nephews. Or I could fund my own Roth. Or I could withdraw it, pay the penalty, and renovate my ktichen.

On the other hand, if we think of it as his money, then can he withdraw it, pay the penalty, and make a down payment on a house. Or he can withdraw it, pay the penalty, and become a ski bum. Or he can save it for his kids, or his eventual spouse to go to college or grad school. My financial advisor also says he could use it to purchase a car to get back and forth to campus and internships, and then he'd still have it after graduation.

Or is there a middle ground where I say first we see if your sibling needs it, then the rest is yours. Or, we keep it in the 529 to be split between all the grandchildren I end up with. Or you can withdraw it for a down payment, but not for skiing.

This is getting more confusing by the post. If there's a sibling coming up behind your son for whom you need to pay for college, then why would DS get to take all the money for himself in any view of the account? Why would you prioritize his spending goals over your other kids' education?

Philosophically, I view it as my and my spouse's money, earmarked for education. We will encourage our kids to make economically reasonable choices (i.e., no glorifying expensive schools for expenses' sake, but also not going to a crappy school that doesn't have the degree they want just to save 15%). Once both kids are all the way through school, the remaining money will be assessed for whatever we think our most pressing needs are next. If there's enough for Roths, then I'd fund them for each kid in equal amounts. If there's some left, I'd let it ride for the next generation's education needs. If something crazy happens in the market and there's $2M in there, I might pull out a big chunk, pay the penalty, and give each kid some down payment money. But I wouldn't tell either kid "this is your money, you can spend it all as you see fit" because that's not my view of it at all. My kids might have different amounts in their 529s just due to market conditions during their lifetime - but their "share" in my head is an equal portion of whatever we've saved, because the point is that we, as parents, are saving for our kids' college costs. Not X amount for Larlo and Y amount for Larla and it's their own slush fund.

[Anonymous]

Hope this isn’t off topic.
Is there some limitation that it has to be used by age 30?

How can it go to a Roth?

Thought ours would go to grad school, but they seem uninterested for now.

[Anonymous]

Anonymous wrote:Hope this isn’t off topic.
Is there some limitation that it has to be used by age 30? No. You can save it in perpetuity as the law is currently written. You can also change the beneficiary as many times as you want. You can pay for your great-grandchildren's college, or you can pay for cooking classes for yourself in Italy.

How can it go to a Roth? This is a new development. If the account has been open for 15 years up to $35k can be rolled into a Roth in their name ($7K x 5 years). This number will probably rise as the Roth max contribution rises.

Thought ours would go to grad school, but they seem uninterested for now.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I think this depends a little on whether you have extra because you ended up able to cash flow some expenses (but can still withdraw from the 529 tax free) or whether you saved more than the total cost of all your expenses.

OP here, if he picks one of the automatic scholarships, then the total cost, even if we provide all his spending money, will be less than the amount in his 529, by more than the $35K he can roll into a Roth.

I think the Money and Finances forum is a better place for this question, OP.

I'm not asking what we're legally allowed to do. I know that. I'm really asking if people think of it as the kid's money, or as the parents' money, or as something else. Or is it something in between?

For example, if I think of it as my money that I was willing to give to him for college and no other purpose, then I could turn around and tell his brother he now has a bigger budget, or I could give it over the years as Christmas gifts to my nieces and nephews. Or I could fund my own Roth. Or I could withdraw it, pay the penalty, and renovate my ktichen.

On the other hand, if we think of it as his money, then can he withdraw it, pay the penalty, and make a down payment on a house. Or he can withdraw it, pay the penalty, and become a ski bum. Or he can save it for his kids, or his eventual spouse to go to college or grad school. My financial advisor also says he could use it to purchase a car to get back and forth to campus and internships, and then he'd still have it after graduation.

Or is there a middle ground where I say first we see if your sibling needs it, then the rest is yours. Or, we keep it in the 529 to be split between all the grandchildren I end up with. Or you can withdraw it for a down payment, but not for skiing.

Parents' money and fits in the bigger picture of parent finances, including overall estate plan and other sources of funds for kid needs down the line.

I would no more turn over control of a 529 to an 18 year old than I would hand them 400k. That age is not ready for that level of decision making. Parent money, parent control.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Move whatever I can to Roth IRAs for them and leave the rest in the 529 for them to use for any future grandkids.

This exactly.

+2

OP, if it were my son I would tell him that the money would be available to him for grad school if he doesn't use it all, and to fund his Roth the first several years he is working. But I would not tell him he could cash the whole thing out as some kind of incentive bonus to go to a cheaper school - it's my money that I've saved, earmarked for education. Not his money that he can spend on either an expensive school or a cheap school and a car, for example.

This sounds reasonable to me. But make sure he understands that it is YOUR money, not his and YOU will decide how best use the money. If he wants to pick a different school because it's not "his money", he has a lot of growing up to do. We paid kids grad school and med school with 529 because two out of three kids received full ride scholarships at UMD. I moved money around between three kids as needed. Never heard one complaint from any of them.

[Anonymous]

Anonymous wrote:Is it theirs to spend? With conditions or without?

Luckily we have a very small one, because our 529 did 2 x in 14 years. Our other accounts did 5x in 5 years.
Who gets the money depends on how much is in there, is there another sibling, and who can make the most of the money going forward. It's possible that I will pay the taxes, the penalty and then do 5x again in a Roth or investment account.
Absolutely not wasting my time rolling it into Roth IRA bit by bit. The success of Roth depends on what you buy in it and when you buy it. Imagine having to wait for the $7k cash to make it into the Roth. I made 10% in Roth today. Sold out of it already and will do it again next week.
There is nothing good about special accounts administered by a company or government charging fees. A lot of what's in the account belongs to uncle Sam.