Q: My child graduated college and we still have leftover funds in a Georgia 529 savings plan; about $5000. If I close the account out, do the leftover funds become income to me as the parent or to my child who did not need the remaining 529 savings plan funds?
A: It must be really nice to be done paying for college and still have $5,000 of leftover funds in a 529 savings plan. Here’s what to do with the money.
I assume that you do not have another child who could benefit from the 529 plan funds. And, I’m also assuming that your child will not need the leftover funds for future education, such as graduate school. If that’s a possibility, you might want to leave the funds where they are.
In fact, you might want to do that anyway. At some point in time, you may have a grandchild and would then be able to name that grandchild as the beneficiary of the account. In the meantime, the money would grow in that 529 savings plan.
I believe if you remove the leftover funds, then your child would pay tax on the money as if it were income. But it depends on how the 529 savings plan was structured. Please ask your tax preparer or call the 529 company for details.