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

[Anonymous]

Our oldest got a merit scholarship and is using the balance for grad school. There won't be anything left after that. For the middle child, their school is upwards of $90k per year, we will need to cash flow some of that, no idea about youngest, still in HS

[Anonymous]

Anonymous wrote: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.

That is so amazing!!

[Anonymous]

Anonymous wrote:

Anonymous wrote:I’m pretty confident that my DC will go to college, and we won’t qualify for aid. Given that, we are funding enough to cover 90-100% of in-state tuition and we will come out of pocket for anything other than that. I’m not at all worried about wasting these dollars.

OP here,

I've got enough put away for about 6 years of in-state tuition and room and board for each kids. I've told my oldest that he has a budget of $X total, and he's found some schools, a couple safeties and a couple matches where the NPCs say he could get the degrees he currently wants debt free. The ones he likes best would come in at the top of budget, and would probably require him to get a job and earn his own spending money, but that's fine. That is what this money is intended for.

But now, as he's getting ready to apply, he's realizing that there are programs where his stats will give him huge amounts of automatic merit, and where he would be able graduate with significant savings. These schools aren't as good a fit in other ways, but they aren't bad schools, just not exactly what he has been saying he wants in terms of size, location, extracurriculars, other subjects he wants to study on the side etc . . . So, he's asking "What happens to that money if I don't use it?" It's a good question so I'm trying to sort out how to answer it.

Wow, sounds like you have a really entitled child.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I gave it to my kid and told them to save it for grad school but if they didn’t go to grad school they could use it for a downpayment or something (didn’t want to leave it in the 529 in case they didn’t go to grad school).

So you paid the withdrawal tax on it? Or, did you cheat on your taxes? Curious.

For reasons not worth explaining we ended up paying out of other funds so we neither paid the tax nor cheated on our taxes as there is no requirement that the exact dollars used for tuition be traceable to the 529.

Basically we felt that we didn’t need those funds for retirement or other siblings but also we weren’t sure we’d be able to contribute more to grad school so we decided it was better to give the funds now with the understanding that it was all they could expect to get to fund grad school.

[Anonymous]

IRA money, tax free generational wealth

[Anonymous]

DS 1 used most of his money in the end because even though he had a scholarship, we used the money for room and board (apartment) and books etc. He has a little left and it's just sitting there. I think eventually we will roll over to an IRA for him, but he might go to grad school in the future and we are waiting. I think he won't and we'll give him the IRA money.

DS 2 is still in college; he will also probably not go to grad school and he will have a little left - we will probably wait and see if either of them need it and then give to them in a tax benefit manner.

The money is not theirs, though, because we funded the accounts, but we have every intention of using it for their benefits or giving to it them. Since they are 20 and 23 and you can use the money for lots of educational purposes, its too early to decide right now.

[Anonymous]

If not used for graduate/medical/law school, then it gets rolled into their first home purchase or their retirement account.

[Anonymous]

In order, though I won’t control all of it: younger kid, graduate school for either kid, small amount of rollover, fun classes in retirement for DH and/or me, grandchildren,

[Anonymous]

Anonymous wrote:We have about 100k left. Just about enough to do 35k Roth each for 3 kids.

Same. Love that this is now an option.

[Anonymous]

Anonymous wrote:

The money is not theirs, though, because we funded the accounts, but we have every intention of using it for their benefits or giving to it them. Since they are 20 and 23 and you can use the money for lots of educational purposes, its too early to decide right now.

If the money came from elsewhere, would you feel differently?

[Anonymous]

Anonymous wrote:If not used for graduate/medical/law school, then it gets rolled into their first home purchase or their retirement account.

100

[Anonymous]

Anonymous wrote:

Anonymous wrote:I’m pretty confident that my DC will go to college, and we won’t qualify for aid. Given that, we are funding enough to cover 90-100% of in-state tuition and we will come out of pocket for anything other than that. I’m not at all worried about wasting these dollars.

OP here,

I've got enough put away for about 6 years of in-state tuition and room and board for each kids. I've told my oldest that he has a budget of $X total, and he's found some schools, a couple safeties and a couple matches where the NPCs say he could get the degrees he currently wants debt free. The ones he likes best would come in at the top of budget, and would probably require him to get a job and earn his own spending money, but that's fine. That is what this money is intended for.

But now, as he's getting ready to apply, he's realizing that there are programs where his stats will give him huge amounts of automatic merit, and where he would be able graduate with significant savings. These schools aren't as good a fit in other ways, but they aren't bad schools, just not exactly what he has been saying he wants in terms of size, location, extracurriculars, other subjects he wants to study on the side etc . . . So, he's asking "What happens to that money if I don't use it?" It's a good question so I'm trying to sort out how to answer it.

If he’s compromising his academics because he wants that money, then tell him he doesn’t get the money and if it’s not spent on undergrad and/or grad school, it’ll help fund your retirement. Later on you can decide what to do with it.

[Anonymous]

Anonymous wrote:If not used for graduate/medical/law school, then it gets rolled into their first home purchase or their retirement account.

How do you “roll” it into a first home purchase without paying taxes and penalties? Or you just plan to pay them. Likewise the ability to roll into retirement accounts is pretty limited.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I gave it to my kid and told them to save it for grad school but if they didn’t go to grad school they could use it for a downpayment or something (didn’t want to leave it in the 529 in case they didn’t go to grad school).

So you paid the withdrawal tax on it? Or, did you cheat on your taxes? Curious.

For reasons not worth explaining we ended up paying out of other funds so we neither paid the tax nor cheated on our taxes as there is no requirement that the exact dollars used for tuition be traceable to the 529.

Basically we felt that we didn’t need those funds for retirement or other siblings but also we weren’t sure we’d be able to contribute more to grad school so we decided it was better to give the funds now with the understanding that it was all they could expect to get to fund grad school.

LOL. So you cheated on your taxes, got it. Also, kinda dumb if he’s going up grad school. It could have grown tax free.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I gave it to my kid and told them to save it for grad school but if they didn’t go to grad school they could use it for a downpayment or something (didn’t want to leave it in the 529 in case they didn’t go to grad school).

So you paid the withdrawal tax on it? Or, did you cheat on your taxes? Curious.

For reasons not worth explaining we ended up paying out of other funds so we neither paid the tax nor cheated on our taxes as there is no requirement that the exact dollars used for tuition be traceable to the 529.

Basically we felt that we didn’t need those funds for retirement or other siblings but also we weren’t sure we’d be able to contribute more to grad school so we decided it was better to give the funds now with the understanding that it was all they could expect to get to fund grad school.

LOL. So you cheated on your taxes, got it. Also, kinda dumb if he’s going up grad school. It could have grown tax free.

Go ask a tax lawyer how the rules work if you think that. Actually got letter audited by the IRS one year and had no complaint from them.

The taxes on a few years of growth if the kid does go to grad won’t be much and will be a lot less than the tax and penalties if they didn’t. On balance we were glad to be done with the 529.