The short version
- You almost never have to cash out. There is no deadline to use 529 money.
- Unused funds can move to a family member, pay up to $10,000 of student loans, or roll into a Roth IRA.
- Taking money out for non-qualified reasons taxes the earnings and adds a 10% penalty, with exceptions such as scholarships.
Graduation day came and went, and there is still money in the 529. Good news: that is a fine problem to have, and you have more choices than most families realize.
Your six options
| Option | What it does | Watch out for |
|---|---|---|
| Grad school | Pay for a master's, law, medical or other graduate program tax-free | Needs the student to be enrolled at least half time for room and board |
| Switch beneficiaries | Move the money to a sibling, cousin, parent, spouse or other eligible family member | No tax or penalty when the new beneficiary is family |
| Student loans | Pay up to $10,000 of the beneficiary's loans, and $10,000 for each of their siblings | The $10,000 is a lifetime cap per person |
| Roth IRA rollover | Move up to $35,000 over a lifetime into the beneficiary's Roth IRA | Account open 15+ years, and it counts toward yearly IRA limits |
| Wait | Leave it invested for future needs, like grad school or a younger sibling | Fees keep running, so check them |
| Withdraw it | Use it for anything | Earnings are taxed plus a 10% penalty, unless an exception applies |
The Roth IRA rollover, explained
Since 2024, leftover 529 money can move into a Roth IRA owned by the beneficiary. It is a great way to turn unused college savings into retirement savings, but the rules are strict:
- The 529 must have been open for at least 15 years.
- Money contributed in the last 5 years (and its earnings) cannot be rolled over.
- The lifetime limit is $35,000.
- Each year's rollover cannot be more than the annual Roth IRA contribution limit, so a large balance moves over several years.
Before you do anything
- 1Add up what you owe yourself. If you paid qualified costs out of pocket, you may be able to reimburse yourself from the 529, as long as the withdrawal happens in the same calendar year as the expense.
- 2Check your state. Some states take back the tax deduction you claimed if you make a non-qualified withdrawal or roll the money out of the 529.
- 3Talk to the beneficiary. A Roth rollover or a loan payment is their money's future too, so decide together.
Which option fits?
- Your child is going to grad school: keep it. It is already tax-free.
- You have a younger child: switch the beneficiary and keep the tax-free growth going.
- They have student loans: use the $10,000.
- The account is 15+ years old and money is still left: look hard at the Roth rollover.
- You need the cash: withdraw only the amount you must, and know that the earnings will be taxed.
Whichever you choose, keep your records. Receipts and enrollment proof for every qualified withdrawal are your protection if the IRS ever asks. Our qualified expense checker is a good place to check before you decide.
Questions families ask
Is there a deadline to use 529 money?
No. A 529 account can stay open and invested for as long as you like. The only deadlines are for specific moves, such as a Roth rollover, which needs the account to be open for at least 15 years.
Do I owe the 10% penalty if my child got a scholarship?
The 10% penalty is waived on withdrawals up to the amount of tax-free scholarships your child received. You still owe regular income tax on the earnings part of that withdrawal.
Can I take the money out and just pay the tax?
Yes. Earnings in a non-qualified withdrawal are taxed as income and usually carry a 10% federal penalty. Your state may also claw back any deduction you took. It is usually the most expensive option, so look at the others first.
This article is general information, not tax, legal or financial advice. Rules and limits change, so check current IRS guidance and your state plan, or talk to a qualified professional.