Special Situations in QTPs: What to Do with Leftover Funds and Family Transfers
Just because your child’s path changed doesn’t mean your 529 plan has to go to waste—let’s explore the flexible options you still have to keep your college savings working for your family.
Hello Discerning Parents and Future Graduates,
Today, we unpack the not-so-obvious scenarios in the world of Qualified Tuition Programs (QTPs), aka 529 Plans. What happens when your straight-A student skips college for a tech startup? Or when your youngest decides trade school is more their vibe than a four-year university? Don’t panic—or worse, withdraw the funds haphazardly. With a little planning, your 529 doesn’t have to go to waste.
Why This Matters
Unexpected changes happen. This article will help you understand your options if you have leftover 529 funds or want to shift education dollars to another family member.
1. The “Leftover Money” Dilemma
Your child graduates (yay!) and there’s $8,000 left in their 529. Now what?
Your Options:
Keep the funds for future graduate school or continuing education.
Transfer to another family member, like a sibling or cousin.
Rollover to a Roth IRA — Starting in 2024, you may transfer up to $35,000 over a lifetime to a Roth IRA if the account has been open 15+ years.
Withdraw it (as a last resort) — You’ll owe income tax and a 10% penalty on earnings.
Scholarship Exception: You can withdraw the amount of scholarships penalty-free (you’ll still owe tax on earnings, but no 10% penalty).
2. Changing the Beneficiary
Did one child skip college or receive a full ride? You can switch the beneficiary to another qualifying family member without tax consequences.
Eligible beneficiaries include:
Siblings or step-siblings
Parents, aunts/uncles, or grandparents
Cousins, nieces/nephews
Even yourself
Heads up: Changing to a beneficiary in a younger generation may trigger generation-skipping transfer taxes.
3. Rolling Over to Another 529 Plan
Rollovers can be helpful when:
You want better investment options or lower fees.
You’re consolidating accounts.
You’re preparing for a different beneficiary’s education timeline.
Rules to remember:
Rollovers are tax-free if completed within 60 days.
Limit: One rollover per 12 months per beneficiary.
Read more on 529 rollovers from Saving for College
4. Non-College Uses for 529 Funds
Did you know? 529s can also be used for:
Up to $10,000/year for K–12 tuition
Student loan repayment (up to $10,000 lifetime per borrower)
Apprenticeship programs registered with the Department of Labor
Check your state’s tax rules—some states may not follow federal treatment for expanded uses.
5. Should You Just Withdraw and Pay the Penalty?
Sometimes, withdrawing might make sense, but:
You’ll owe taxes and a 10% penalty on earnings
Consider only if:
The balance is small
No alternative beneficiary exists
You have an urgent financial need
QTPs are built with flexibility in mind—but only if you know how to use them. From transferring beneficiaries to rolling over funds or converting to a Roth IRA, there are many ways to keep unused education dollars working for your family.
Not sure what to do with leftover 529 funds or how to coordinate transfers across kids? Schedule a Getting Acquainted Call and let’s chart the best path for your family's education savings.
Whether you’re dealing with a scholarship surprise, a student who’s opted out of college, or a cross-border opportunity, remember: flexibility is your financial plan’s finest feature.
Until next time—plan boldly and adjust gracefully.
With appreciation,
Julie Bray
Your Family's College and Retirement Champion
GW Financial, Inc.
This post is part of our QTP blog series. Don’t miss our final chapter next week: wrapping it all up with key takeaways, timing strategies, and how to coordinate tax credits, aid, and distributions like a pro. (You can find our previous posts here: first article, second article, and the third article.)
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by GW Financial, Inc. to provide information on a topic that may be of interest. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2025 GW Financial, Inc.
