Tax Tip #289

A nice problem to have – excess 529 college savings funds. Here are some options: 

• Pay off college debt of the account beneficiary. Up to $10,000 from 529s can be used for this without having to pay federal income tax on the withdrawal. This $10,000 is a lifetime limit, not an annual limit.
• Roll over money to a 529 account for another family member’s education. 
• Transfer funds to an ABLE account for a disabled beneficiary or sibling. 
• Some 529 funds can be rolled over tax-free to a Roth IRA for the beneficiary in a trustee-to-trustee transfer, subject to many rules. There’s a lifetime $35,000 cap. The 529 account must have been open for at least 15 years, with the same beneficiary. Amounts contributed to a 529 plan made in the previous five years can’t be rolled over. Annual rollover amounts can’t exceed the yearly contribution limit for Roth IRAs, which is $7,500 for 2026.