What happens if there is leftover money in the 529 Plan after the original beneficiarys educational needs have been met?
The best approach, of course, is to not allow the account to become significantly over-funded. Remember, this is a college savings plan that has some great estate planning benefits, not vice versa. If there is money remaining after the educational needs of the initial beneficiary has been met, there are a couple of steps that can be taken. (1) If you replace the designated beneficiary with a new beneficiary who is a member of the family, then no further gift is involved, unless the new beneficiary is assigned to a lower generation than the old beneficiary. If the new designation is in a generation lower, then the old beneficiary is treated as making a gift to the new beneficiary subject to all the normal gift tax rules. In this situation, the five-year averaging election can be made by the old beneficiary for the deemed gift to minimize or avoid gift tax consequences, or, (2) You can simply terminate the account and receive a refund of the account value, subject to income tax and the a
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