Allworth Council | What to do with excess money in a 529 plan

Amy Wagner and Steve Hruby
| Cincinnati Inquirer

Each week, Amy Wagner of Allworth Financial and Steve Hruby, CFP^®answer your questions. If you, a friend, or someone in your family is having financial problems or concerns, feel free to send these questions to [email protected].

Ronnie and Amy from Blue Ash: We saved the 529 for our son and he used most of it for college, but still has a few thousand left. Can we do anything with this money?

Reply: Absolutely! In fact, thanks to the SECURE Act and SECURE Act 2.0, there are now several more options for what to do with your 529 college savings plan balances. Here’s a quick overview of your options.

First, if you have other children, you can simply change the beneficiary. It’s a fairly simple process (talk to your 529 plan provider) and doesn’t incur any penalties or taxes.

Second, you could roll the money into a Roth IRA for your son. Just remember that this option has a few restrictions, including: the 529 plan account must be at least 15 years old; there is a lifetime rollover limit of $35,000; and the conversion counts toward the annual Roth IRA contribution limit.

And finally, you can now use excess funds to pay off student loans (up to $10,000 per lifetime beneficiary limit).

Allworth’s advice is that 529 plans are now more flexible than ever, making them an even more attractive option for saving money for future educational needs. But, of course, as with everything related to the tax code, sometimes the rules can get tricky, so be sure to consult with a trusted tax professional or fiduciary financial advisor if you have questions.

Nick from Cincinnati: Do you recommend alternative investments?

Reply: Alternatives (or “alternatives”) are certainly making a lot of noise lately. But before we weigh in, let’s define them first: Essentially, these are types of investments that don’t fit into the typical categories of “stocks”, “bonds” or “cash” – hence things like private equity, hedge funds, real estate , commodities (gold, silver, oil, etc.), collectibles (wine, art, classic cars, etc.) and cryptocurrency.

Alternative currencies can provide additional diversification, inflation protection in some scenarios, and even the potential for higher returns than the stock market. But on the other hand, they are also riskier, more complex and, in many cases, illiquid.

So to answer your question, do we recommend them? It depends. Alts are definitely not for everyone, especially since they require a higher risk appetite and even a certain level of assets. But for a certain group of investors with certain types of portfolios, they can offer potential additional value.

With that in mind, here’s Allworth’s advice: If you think you want to dive into the world of alternatives, start small to get a feel for them. And you better be prepared to do the research. Make sure you fully understand all potential benefits, risks and charges.

Answers are for informational purposes only, and individuals should consider whether any general advice in these answers is appropriate for their particular circumstances, based on investment objectives, financial situation and needs. If the reader has any questions regarding the applicability of any specific matter discussed above to his/her individual situation, he/she is encouraged to consult with a professional advisor of his/her choice, including a tax advisor and/or an attorney. . Retirement planning services offered through Allworth Financial SEC Registered Investment Advisor. Securities offered through AW Securities, a registered broker/dealer, member FINRA/SIPC. Visit allworthfinancial.com or call (513) 469-7500.