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What to Do If You Saved Too Much in Virginia529




Overfunding a Virginia529 account might seem like a good problem to have, but it's a real concern for many families. Saving more than you need for college can lead to unnecessary penalties and taxes if you're not careful. Fortunately, Virginia529 offers a number of flexible options for managing those excess funds.

Here's a guide to what you can do if you've saved too much in your Virginia529 account.

1. Change the Beneficiary

This is often the most straightforward and tax-efficient solution. You can change the beneficiary of your Virginia529 account to another eligible family member. The IRS defines a "member of the family" broadly, including:

  • The beneficiary's spouse, children, or their descendants

  • Siblings, step-siblings, parents, and stepparents

  • Aunts, uncles, nieces, nephews, and first cousins

  • In-laws (son-in-law, daughter-in-law, etc.)

This is a great option if you have another child who will be attending college, or if you want to help a niece, nephew, or grandchild with their education.

Key benefit: This is a tax-free and penalty-free transfer, ensuring all the benefits of your savings carry over.

2. Save the Funds for Future Educational Expenses

Just because your child is done with their undergraduate degree doesn't mean their education is over. You can simply leave the money in the account for future use.

  • Graduate School: The funds can be used for any graduate or professional degree program, including medical school, law school, or an MBA.

  • Continuing Education: The money can also be used for vocational or trade schools, as well as certain certification or credentialing programs.

  • Future Generations: Since there is no time limit for when the money must be used, you can also leave the funds in the account for a future grandchild.

3. Use the Funds to Pay Off Student Loans

Thanks to the SECURE Act, you can now use up to a lifetime limit of $10,000 from your Virginia529 account to pay off qualified student loans for the beneficiary or their siblings. This is a tax-free and penalty-free withdrawal.

Important Note: The portion of student loan interest paid for with tax-free 529 funds is not eligible for the student loan interest deduction.

4. Rollover to a Roth IRA

This is a new and exciting option, thanks to the SECURE 2.0 Act. Beginning in 2024, you can roll over up to a lifetime limit of $35,000 from a 529 plan to a Roth IRA for the same beneficiary. This is a tax-free and penalty-free transfer, but it comes with a few strict rules:

  • The 529 account must have been open for at least 15 years.

  • The contributions (and any earnings on them) made to the 529 plan in the last five years are ineligible for the rollover.

  • The rollover amount is limited to the annual Roth IRA contribution limits (for 2025, that's $7,000), and the beneficiary must have earned income at least equal to the amount transferred.

This is an excellent option for kickstarting your child's retirement savings with their leftover college funds.

5. Take a Non-Qualified Withdrawal

This should be your last resort, as it comes with a financial cost. You can withdraw the money from the account for any purpose, but the earnings portion of the withdrawal will be subject to both a 10% federal penalty and federal and state income taxes.

Penalty Exceptions: There are a few scenarios where you can avoid the 10% penalty on non-qualified withdrawals, though the earnings are still subject to income tax:

  • If the beneficiary receives a tax-free scholarship, you can withdraw an amount equal to the scholarship without penalty.

  • If the beneficiary becomes disabled or dies.

  • If the beneficiary attends a U.S. military academy.

By understanding these options, you can ensure that your Virginia529 savings are used to their fullest potential, whether for education, retirement, or another financial goal.

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