After Graduation
You may transfer any extra funds to a family member (younger sibling?, grandchild?) who needs them.
Siblings attend college or trade school at different times, using their 529 accounts in different years. A key benefit of 529 plans relates to their transferability between related beneficiaries. Fee-free transfers may be between other family members and legally adopted children as well. A grandparent with 5 children and 15 grandchildren may transfer funds from 19 accounts all to the 1 grandchild in school that year!
Per federal regulations, an Account Owner may only change investment options for the same beneficiary twice per calendar year, including in conjunction with a change of beneficiary.
This ”Ladder of Giving” transfer practice usually shifts funds by age from oldest to youngest as they are needed.
A father-owner has 4 female children: A, B, C, and D. Child A is the eldest and is applying for college. Siblings B, C, and D–in order of age–are younger.
1) The owner transfers money away from A to a sibling’s account as she applies for schools and financial aid, improving child A’s financial aid options.
2) Before her school begins, the owner transfers funds to child A’s account that she will require for school tuition, room, board, computer, etc. He teaches child A what the funds may and may not be used for. Accounts of children B, C, and D continue yearly transfers–all to A’s account–while she requires the funds.
3) After child A finishes school, the owner continues to deposit funds in her (and other sibling’s) accounts.
4) As child B starts school, the extra funds from child A (and children C and D) now transfer to the next younger sibling and help her out through college.
5) The yearly transfer process continues with all four accounts continuing to contribute to any sibling that remains in school. If a child chooses to go to graduate school, the process could go on many years.
George’s grandson A is 18 and his sister B is five. George can transfer the five year-old’s account balance to the 18 year-old account balance. In five years when the now 23 year-old A finishes college, George will continue to contribute and transfer it back to the younger grandchild B for the time she will use it later. In reality, George has nine grandchildren, and all of their accounts will be able to contribute to each others’ degrees through transfers, due to age differences.
No statement or example on this site should be considered a specific recommendation for your personal situation. Investing and tax strategies each carry significant risks. Examples herein may not apply to your situation. Please consult your estate attorney, tax advisor, or financial advisor for personal advice.