A full scholarship – What to do with stashed cash in the 529 plan account?

If your child gets a full scholarship, there’s bound to be a celebration in the family. But, what happens to the 529 plan you’ve created and aggressively funded? You have a couple of options.The first thing to know, as financial planning expert Peter Dunn wrote in USA Today in April 2016, you can make withdrawals without the 10 percent penalty for non-qualified withdrawals – your child’s full scholarship creates that exception.

The money in your child’s 529 plan can be used for expenses not covered by the scholarship, like supplies, or, in some cases, housing. Not all full scholarships cover the same thing. Some cover tuition only, some scholarships include room and board.

You can save that funding for the potential that your child continues his or her education – graduate school is expensive too. Or, you could change the beneficiary of the plan, and save for a sibling’s education, or that of a future grandchild.

If you don’t have another child, Dunn suggests that you withdraw money from the 529 plan account and use it for your retirement. You’ll have to pay taxes on the interest that the money accrued while in the 529 account, but there’s no withdrawal penalty, so why not?