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Higgins Capital Management, Inc.

What to Do with Leftover 529 Plan Funds: Your Options Explained

For investors, managing leftover funds in a 529 plan requires careful consideration and strategic planning. Circumstances may arise where the designated beneficiary does not require the entire sum allocated for education. In such scenarios, exploring alternative options becomes imperative to optimize the use of these funds. Whether through beneficiary transfers, alternative uses for educational expenses, or repurposing the plan for retirement savings, exploring the available options is crucial for optimizing the benefits of these tax-advantaged accounts. Here are 5-Options for those leftover funds:

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1 One option for Investors is to transfer the remaining funds to another eligible family member. The flexibility of 529 plans allows for changing beneficiaries without incurring taxes or penalties,

provided the new beneficiary is a qualified relative of the original beneficiary. This transfer can be advantageous for HNW families with multiple children or grandchildren, allowing them to allocate funds to those in need of educational support.

2 Another avenue to consider is utilizing the funds for qualified educational expenses beyond traditional college tuition. While 529 plans are primarily associated with higher education, they can also be used for K-12 tuition expenses, apprenticeship programs, and even student loan repayments. For investors, this broader scope of eligible expenses opens opportunities to support educational pursuits across various stages of life.

3 Alternatively, Investors may opt to retain the funds in the 529 plan for future educational needs or to benefit future generations. With no expiration date or age limit for using the funds, investors can maintain the account and leverage its tax-deferred growth potential until a suitable opportunity arises. This approach aligns with long-term financial planning strategies, ensuring that educational funding remains available for future family members.

4 For those who have fully addressed educational funding needs within their family, converting the 529 plan into a retirement savings vehicle presents an intriguing option. While traditional retirement accounts offer tax advantages, the 529 plan's flexibility allows for tax-free withdrawals when used for qualified educational expenses. By repurposing the plan for retirement savings, investors can diversify their portfolio and potentially mitigate tax liabilities in retirement.

5 Lastly, if none of the options suit the investor's objectives, withdrawing the remaining funds from the 529 plan is a viable choice. However, caution must be exercised as non-qualified withdrawals are subject to income tax and a 10% penalty on earnings. Investors should assess their tax situation and financial goals before opting for this route, as it may result in undesirable tax consequences.

The information contained in this Higgins Capital communication is provided for information purposes and is not a solicitation or offer to buy or sell any securities or related financial instruments in any jurisdiction. Past performance does not guarantee future results.

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