What Should You Do With Leftover Money in Your NC 529 Account?

If you’re considering opening an education savings account, or you already have one, you may be thinking about how much money you want to have in the account by the time your child heads off to college. It’s a great idea to save money in a tax-advantaged education account where the earnings are not subject to state or federal taxes when they’re used for qualified education expenses. The best way to maximize your savings is to open an account when your children are young so the money can grow with them.

However, when your kids are still little, it’s hard to predict how much money they’ll need for college. A frequent question we get from parents is, “What happens if my child doesn’t use all the money in their NC 529 Account? What are my options to use the leftover money in 529 accounts?”

That’s a great question, and we have several options to help families use all the leftover money for education and avoid taxes and penalties. First, let’s discuss some of the education expenses you can use the account to pay for.

How Can I Spend NC 529 Funds?

To maximize the tax advantages of your NC 529 Plan, you will want to use the money to pay for qualified education expenses. This may sound complicated, but it’s not. Think about nearly any expense related to education, and you can use NC 529 funds to pay for it.

• K–12 tuition
• College expenses
• A computer and technology
• Books, supplies, and fees
• Room and board
• Career and technical programs
• Student loan payments

The amount of money your child will need to cover all these expenses will vary from student to student and depends on several factors, including whether they attend a two-year, four-year, public, or private school. So, if your child finishes their education and there are still funds remaining in the account, what happens to the leftover NC 529 Plan money?

Is This a ‘Use it or Lose it’ Account?

Let’s be clear, you control every penny in your child’s NC 529 Account. It’s not going anywhere unless you make a withdrawal. If there is money left in the account after your child has completed their education, you have several options:

• Do nothing – There’s no time limit on how long you can keep an account, so your child can use the money in the future to attend graduate school or pursue another degree. In the meantime, it will continue to earn interest and grow.
• Rollover the funds to another family member – The money can be used by a sibling, or even you, to pay for education-related expenses.
• Roll over 529 to Roth IRA – Unused 529 plan funds can be rolled over, tax-free, into a Roth IRA for the beneficiary of the 529 account. There are conditions and limits, so it’s a good idea to consult a tax representative or financial advisor. You can also always reach out to us with any questions you may have.
• Pay student loans – Use up to $10,000 to repay the beneficiary’s student loans without taxes or penalties. An additional $10,000 can be used by each sibling to repay their student loans as well.
• Make a non-qualified withdrawal – If you don’t want to use the money for education, you can withdraw the remaining funds. However, the earnings will be subject to taxes and a 10% penalty.

Will the Leftover Funds Be Subject to Taxes and Penalties?

There are no taxes or penalties if you leave the money in your NC 529 Account and hold onto it for future education needs. You also won’t be penalized for rolling over leftover NC 529 Plan money to another plan to use the money for another family member’s education. That is a really smart way to continue getting the tax advantages of the account. The only time you must pay taxes and penalties is when the money is used for non-qualified education expenses.

How Much Should I Save for College?

That’s a great question, especially for parents of young children. You don’t want to spend the next 18 years saving more money than you need for college. The answer will vary for every family. It will depend on the number of children you have, how much money you can set aside each month, whether they’ll attend an in-state or out-of-state college, and much more.

Our savings calculator can help you figure out how much money you’ll need to save every month to reach your education savings goals. It’s also a great way to visualize the benefits of opening an education savings account when your kids are young. Ready to start saving for education? Open your NC 529 Plan now and watch the account grow with your child.