![]() Designate Funds to a Different Beneficiary.Īnother option is to designate the funds to another child or future grandchild for educational use. It is important to double check with your specific state’s 529 plan. While you will get a Federal tax break, you will be taxed at the state level for this withdrawal. For example, Missouri does not allow 529 assets to be used towards student loans. ![]() It is worth noting that not all states allow earnings from 529 accounts to be used towards student loans without penalty or tax impact. So if your child, or another beneficiary you’d like to transfer the account to, has student loans outstanding, any leftover 529 assets could also be used to pay down those loans. Up to $10,000 of a 529 account can also be used towards student loans as well. This is a great option toward taking full advantage of the scholarship funding received to use 529 savings toward educational expenses or opportunities that you did not originally anticipate or expect to achieve. Often, there are additional expenses that could come up such as graduate school, study abroad programs, or other expenses. One option available is to leave the funds within the 529 plan for a future use. If you have unused funds in your 529 because of a scholarship, you are able to get that savings out without penalty. So, if the potential for a scholarship has been making you hesitant on saving in your child’s 529, this is generally not a cause for concern. Here is where you will record the amount of your 529 withdrawal, and designate how much of that withdrawal is not subject to penalties: 529 plans will allow money to be taken out for the exact amount of the scholarship or grant that has been awarded. However, if the withdrawal is a result of a scholarship being received, the penalty will not be applied. Normally, withdrawing from a 529 plan for nonqualified education expenses comes with potential taxes and penalties. ![]() This topic is not mentioned in the video below, but is discussed in the text below. Update: The recently signed SECURE Act 2.0 adds a provision to allow 529 account balances to be transferred to Roth IRAs. Thankfully, there are a variety of different options that can be pursued in this circumstance. When a student receives additional financial aid, it poses a question regarding what will happen to funding saved in 529 accounts that is now being covered elsewhere. Utilizing a 529 plan can be greatly beneficial toward anticipating the expenses ahead however, it is difficult to predict what may be received in grants and scholarships in the future. What happens to a 529 if my child gets a college scholarship or grant?ĥ29 accounts have withdrawal rules that allow for penalty-free withdrawals if your child receives a scholarship. ![]()
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