How to Opt Out of 529 College Savings Plans

Getting money in is simple. But how easy is it to get out?

There are many things to like about 529 college savings plans.

Flexibility is not one of them.

In exchange for your (potentially) tax-deductible contributions, and your tax-free earnings, you lose many choices regarding how to use your money.

Every plan has an investment manager – and part of your contribution goes to paying for that manager and other assorted overhead costs. Just as in a mutual fund, you don’t have a say in how your money is invested – that’s entirely up to the managing firm.

Likewise, you don’t have many choices about how to spend your money once you want to withdraw. Except in rare cases, it can only pay for education – any other use is severely penalized.

However, there are some special cases where you can get your money at no cost. If you need to opt out of your 529 plan for any reason, below, you’ll find out how.

Roll It – Or Else

A standard withdrawal from your 529 faces the most penalties. If the money isn’t going towards education and you take it out, you’ll be paying a 10% fee. After that, there may be penalties assessed by the firm managing the account – and, of course, all money withdrawn is now taxable.

That’s a pretty hefty fine for early withdrawal.

But maybe you don’t want out entirely – you just want a different manager. No problem – you can roll over your 529 to a different 529 for no cost.

You can also roll a 529 to a family member (normally a sibling), if the intended recipient decides not to go school, or can’t for whatever reason.

In addition to these, there are some opt-out clauses which allow you to withdraw money with no penalty.

Death or disablement are two of them. If the intended recipient is physically unable to attend college due to some tragedy, you won’t be paying penalties on top of that.

To summarize, you can roll the money between plans easily, and you can roll it between people, but short of death or disablement, that money pretty much has to go towards someone’s education. If it doesn’t, a big chunk will wind up in the hands of Uncle Sam.


Scott Weingold

Related Articles:

Do 529 Plans Hurt Financial Aid?

Are 529 Plans a Good Idea?

Are 529 Plans a Good Idea? Part 2

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Editor's Note: Scott Weingold has been ranked the #1 “College Financial Aid Expert Worth Knowing About” in the entire country by  He has co-authored the book, “The Real Secret To Paying For College. The Insider’s Guide To Sending Your Child To College – Without Spending Your Life’s Savings.” Scott also publishes a popular free online newsletter, “College Funding Made Simple" which reveals insider’s tips, methods, and strategies for beating the high cost of college.

Scott is the co-founder and a principal of the widely renown College Planning Network, LLC – the nation’s largest and most reputable college admissions and financial aid planning firm. CPN is a proud member of the Better Business Bureau, the National Association of College Funding Advisors, the National Association for College Admission Counseling, the National Association of Student Financial Aid Administrators and the Student Affairs Administrators in Higher Education.

Scott, along with his college funding advisory team, helps thousands of families throughout the country with their college planning needs and offers a series of free educational webinars and workshops on “How To Pay For College Without Going Broke In The Process!” He's been featured or mentioned in The Philadelphia Inquirer, Yahoo News,, Voice America with Ron Adams, Crains Cleveland Business, and on Cleveland Connection with James McIntyre.  Scott has published numerous articles and is a professional speaker who has addressed thousands of audiences online and offline throughout the United States.  His actionable insights and candid, open approach have earned him & his team numerous media interviews, citations, and speaking opportunities, and his free online video workshop is one of the Internet’s most widely viewed pieces in the college funding space.