Have a 529 Plan? See What Happens When Your Child Turns 21

Financial planning for college adds to a family's preparedness for paying off school costs. What happens to a 529 plan when your child turns 21?


Mar. 6 2023, Published 1:04 p.m. ET

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When looking forward to a child's future, some parents may encourage their children to explore higher education and look into the possibilities of becoming college students and later graduating. College, however, comes with a hefty price tag depending on the school of choice, loans, and other financial contributions that weigh down the overall cost of attending different institutions.

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Financial planning for college adds to a family's preparedness for paying off school costs. Some may opt for a 529 plan. What is a 529 plan and what happens to a 529 plan when your child turns 21?

What is a 529 plan?

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A 529 plan is an investment account that comes along with tax benefits when used to pay off eligible education costs. The 529 plan, when put towards a designated beneficiary, can aid in covering K–12 tuition, apprenticeship costs, college tuition, and can be applied to repaying student loans. When using a 529 plan to save for college, the savings set aside will minimally impact how eligible a student may be for financial aid. 529 plans come in two forms: college savings and prepaid tuitions.

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What are the benefits of a 529 plan for saving for education expenses?

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Before detailing what happens to your 529 plan when your child turns 21, it's important to note the benefits of a 529 plan when saving for education expenses. 529 plans come with federal income tax benefits that can sometimes double with state tax benefits. These plans are low maintenance when being tended to from a financial standpoint. High contribution limits allow you to choose how much is deposited, and 529 plan holders are given favorable treatment from financial aid.

529 plans are tax-deferred and all distributions are tax-free when used towards paying education expenses. Some states may not include 529 plans from taxable income, and these are the only college plans that include state tax benefits. When contributing to 529 plans, they can be set for auto-deposit when depositing funds without requiring yearly contribution limits. 529 plans are viewed as a parental asset by financial aid officers and don't impact aid eligibility.

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529 plans are non-exclusive and offer the same range of benefits across families, regardless of the contributions put into these plans or what the household income may look like. Almost anything can be invested into 529 plans, and where you live or where a child may attend college doesn't impact the value of these plans when applied to pay education expenses. However, these funds must be put towards education of some form.

What happens to a 529 plan when your child turns 21?

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Thinking about what happens to a 529 plan when your child turns 21 isn't as intimidating as one would think when mapping out financial support for the future. It depends on the state laws, but when your child turns 21, they will gain control of the 529 plan. Money put into the 529 plan is considered an irrevocable gift that can't be transferred over to another beneficiary. Once your child reaches the legal age to control the account, they can and 529 plans don't expire.

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Even if your child doesn't go to college, they will still have access to the funds. Investments grow tax-deferred and can be applied to another family member or grandchild's education expenses down the line. Leftover 529 plans deemed good for paying education fees can be transferred over, even if your child is 21. If your child does use the funds, they can put them towards paying off student loans or other non-qualified expenses. When a beneficiary turns 30, the leftover funds should be withdrawn.

Once a child hits the age of 21, their 529 plan is considered to be theirs to oversee, but they also have the option to allow their parents or guardian to retain control over the account for as long as they see fit. They're simply given the choice of what steps they'd like to take with the funds in their 529 plan moving forward.

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