My wife is returning to grad school this semester. It turns out that her grandpa has some money in a 529 for any grandkids that continue education after college. They went through everything together and she ended up with a check for $20,000. She was then approved for a loan program through the university at very low interest that is completely repaid if she works for the university for a couple of years after graduation. All of that being said- all she will need covered at this point is a couple hundred dollars per semester for textbooks.
Do we need to create a new 529 in my wife's name that we can later transfer to children or cover tuition expenses should the university loan fall through? Our daughter also has a 529 account in her name – could we transfer some into that account?
Any help or information is appreciated. I don't fully understand what is allowed and don't want anyone to face any unnecessary penalties for misusing 529 funds.
What to do with a 529 check that I don't need anymore?
byu/ur2ndworstnightmare inpersonalfinance
Posted by ur2ndworstnightmare
4 Comments
If she’s planning to work at the university for a couple of years to pay off her debt, it’s worth asking whether that really makes sense? Especially if she has a 529 plan available.
The reason I raise this is because she could use the 529 now, graduate, and go straight into a professional job where she might earn double what she would make working at the university. Alternatively, those couple of years spent at the university aren’t just low-paying, they represent lost income and missed career momentum during what are likely her prime earning years.
While being thrifty and keeping the 529 flush, it could actually result in a greater financial loss over time. She may also fall behind professionally. Unless she plans to stay in academia long-term, working there can set her back, because the private sector typically moves faster and values different types of experience. Time spent in a university role may not be seen as valuable or relevant when she tries to transition into a private-sector position later.
The best path after graduation is usually to start working in your field right away. The longer the gap between earning a degree and using it professionally, the harder it can be to enter her field and advance.
So, weigh the pros and cons carefully. Saving money now could come at the expense of long-term earnings and career growth. It may be more beneficial to use the 529 plan to fully fund her education and focus on launching her career. Also consider what it would take to continue contributing to a 529 monthly so your child is fully covered when the time comes. Do the math, it’s not just about saving, it’s about maximizing value over time.
Staying in a lower paying job post graduation just for debt repayment when you have money from a 529 makes no sense.
You need to maximize your earnings early in your career as every future raise and new job negotiation is based off this initial salary. Assume you earn 60k at the university for 3 years vs 80k private. That is a 60k earning difference in 3 years. Plus the next job may offer a 5% raise, on 60k that is 3k, on 80k that is 4K, 25% more but the real difference is 63k vs 84k AND that increased money continues all the way through her career which can be 100´s of thousands of greater earnings over 20-30 years.
Use the 529 to pay off the loan.
>They went through everything together and she ended up with a check for $20,000.
That check *has* to be used for educational expenses or you will have to pay penalties. The penalty will be *at least* 10% of the money withdrawn, but it could be more.
You can probably roll the money over to your daughter, but that is an action that happens within the 529. It isn’t something you do with the check.
If you have already cashed the check, there will be penalties. I am not entirely sure how that happens, if it would go to your wife or her grandpa.
The bottom line is that grandpa and the 529 company need to be involved in this situation. This isn’t a situation you should handle without him.
You have to “re-contribute” the money back to the 529.
https://thecollegeinvestor.com/42345/correct-529-plan-over-withdrawal/