Managing Excess 529 Funds: Options and Strategies

Excess 529 funds can be effectively utilized for Roth IRAs, educational goals, or matching contributions for children's savings.

### Utilizing Excess 529 Funds: Options and Strategies for Future Education
* 💰 David L inquires about the best options for excess 529 account funds if future schooling is not planned, mentioning the potential use of these funds for **Roth IRA contributions** starting in **2024**.
* 📈 The legislation allows **up to $35,000** to be used for funding a Roth IRA for the beneficiary, but this amount is limited to the **annual contribution cap**, which is approximately **$77,000 over five years**.
* 🔍 It’s important to note that utilizing 529 funds for a Roth IRA will **reduce the beneficiary's ability to contribute to their own Roth IRA**, making it a **catchall provision** rather than a **primary planning strategy**.
* 👨 Before deciding to fund a Roth IRA, consider rolling over excess 529 funds to other siblings or beneficiaries, as these funds can also be used for **vocational schools, trade schools, or graduate degrees**.
* 📚 If there are no educational goals left to fund within the household, and the 529 account has been open for over 15 years, it can serve as a tool to **assist a child entering the workforce**, helping them with their **financial beginnings**.
* 💵 A suggested approach is to implement a matching strategy, where parents **match the child's savings** to encourage **responsible financial behavior and investment habits**.
* 🌱 This strategy not only prepares children for financial independence but also instills the **value of saving and investing**, aligning with traits often seen in **successful individuals**.
* 🤝 Ultimately, using excess 529 funds wisely can foster **good financial habits** and ensure that both **education** and **future financial stability** are prioritized.

[Music] um David L asks um he says hi money guys what would you recommend doing with excess 529 account funds if you don't plan on future schooling. I heard in 2024 that you could use the 529 funds to Max your Roth IRA so when is that true and should they do it and what other options are there for people who find they have extra funds in their 529 accounts. Yeah when this legislation first passed I think we all Financial IM mutant we got so excited oh there's a huge opportunity here holy cow this is going to be an amazing thing and it's a positive but it's not an amazing then we saw the butts yeah there's there's a bunch there's a bunch of stuff to it so uh here here's what ends up happening if you end up in the position where you have extra 529 assets those assets can then be used to fund Roth IRAs for the beneficiary and you can do up to $35,000 for the beneficiary but it's

it's limited each year to the maximum contributable amount, so it's like $77,000 a year over the course of five years. And it's not like it's an addition to what they could do on their own; it actually eats up their availability. So, if you have XS 529 for your kids and you fund a Roth IRA, they won't be able to fund their own Roth IRA because you will have funded it from the 59. Now, again, yeah, that's certainly a better option than having to pay taxes and a penalty on withdrawing those funds, but I think this is more of like a catchall provision than like a planning provision because most... There is one other thing you ought to share: they have to be around for 15 years. These accounts have to be around 15 years. That's exactly right. So, we think when it comes to 529s, one of the things you ought to consider before you start thinking about funding Ross is, Okay, are there other siblings, other beneficiaries that it might make sense to roll this too? So, if you have multiple

kids maybe you owe overfund the oldest child's and then whatever is not used you roll to the next child the next child and you do it that way and this can pay for not just like traditional four-year universities but this can go to vocational schools or trade schools or it can go for graduate level degrees so I think the best way to use 529 assets is to use them for higher education but then if you do get to the end of the plan and there are dollars left over it's nice that now there's another outlet to be able to exhaust those assets as opposed to just paying the taxes and P I think you just nailed it what I would summarize this is is of course look around your household see if there's any other educational goals that need to be funded in a tax-efficient even tax-free way so that's why I think siblings don't sleep on yourself you might if you ever thought about hey I want to go back to school myself to get a degree or something you can you know

look around the house and see if there's any education opportunities. If the answer is no, then you say, Yeah, I think this account's been open over, you know, the 15-year requirement. I'd love to use this as a tool to prime the pump of good behavior for my child who's getting out in the workforce by all means. 'Cause think about this, you know, your first year out of school, you're probably not going to have a great salary. Nobody comes out unless you're a professional athlete or, you know, you're a Performing Artist like Justin Timberlake or somebody like that. You've been in school for 10 years, you know, there's few people that come out making great money because you got to get that experience and you got to get, you know, get the Mastery of whatever your skill is. So, it'd be great if you're not going to be able to maximize $77,000 naturally. Why not do what I've always talked about? Let's prime the pump and do a dollar-for-dollar match with your child that

you say look you know if you can save $3,000. I'll put in $3,000. Or if you can put in $3,500. You figure out the matching formula but use this as kind of that carrot to get that behavior avior of saving and investing for the future to take hold and and really start to grow some Roots so that they not only have the education that you plan for but you also got the behavior of creating automated always be buying type behaviors to get the best result possible and that's a functioning independent Financial mutant child that is going to be able to keep bearing fruit for you for many years as well as being self-sustaining because remember when we talk about Millionaire Next Door when they talk about traits of what millionaires do it's not only they allocate their own resources well it's that that their adult children aren't dependent upon them and their success so so let's go ahead and use this as a tool in that endeavor it's great

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Excess 529 account funds can be used to fund Roth IRAs for the beneficiary, with a limit of $35,000 over five years.

This funding will reduce the beneficiary's ability to contribute to their own Roth IRA.

It's also worth considering rolling the 529 funds to other siblings or beneficiaries before using them for Roth IRA contributions.

Using 529 plan assets for the oldest child's education and rolling over any unused funds to the next sibling is a smart strategy.

These funds can be used for various educational purposes, including vocational schools, trade schools, and graduate degrees.

It's also beneficial to consider personal educational goals, as 529 plans can provide tax-efficient or tax-free funding for returning to school.

Using an Account to Support a Child's Transition to the Workforce

The speaker suggests looking for educational opportunities at home and using a long-open account to support their child's transition to the workforce.

They emphasize that most graduates don't have a great salary in their first year out of school, making it challenging to maximize earnings.

The speaker proposes a dollar-for-dollar match with their child to help prime the pump for good financial behavior.

Encouraging Saving and Investing for the Future

Using a matching formula for savings can motivate individuals to save and invest for their future.

This approach aims to instill automated buying behaviors for long-term financial success.

The goal is to raise independent, self-sustaining individuals who are not dependent on their parents' success.