A financial advisor suggests 4 ways to optimize remaining funds in a 529 college savings account.

• Unused 529 college savings plan funds can be rolled over to a Roth individual retirement account in the beneficiary's name for families seeking to reallocate funds.
• Other ways to utilize leftover 529 savings funds include altering the beneficiary and settling student loans.

To combat the rising cost of college education, many families have opted for 529 college savings plans as a strategy.

Concurrent Financial Planning in Green Bay, Wisconsin, offers accounts that allow families to save money for college while taking advantage of tax breaks and compound interest, as stated by certified financial planner Preston D. Cherry, who is also a member of the CNBC Financial Advisor Council.

By investing at the child's birth, you have 18 years to earn money and potentially outpace the inflation of college costs, according to Cherry's advice to CNBC.

As of the end of 2023, families have invested $441 billion in 529 accounts, which is a 16% increase from the previous year. In 2024, 35% of families used 529 funds to pay for college, covering an average of 9% of the cost of attendance.

But what happens if you have leftover 529 funds?

"Sometimes, students may receive scholarships or need-based financial aid, or have grandparents or other family members contribute to their college expenses," Cherry stated.

While the number of students earning bachelor's degrees is decreasing, the number of students earning certificates is increasing due to the growth of vocational programs, resulting in an education surplus.

Cherry advised that unused money in a 529 college savings account does not have to remain locked up, and here are four ways to make the most of it.

1. Roll funds into a Roth IRA

With the Secure Act 2.0, savers can now transfer funds from a 529 plan to a Roth IRA without penalties or taxes. This new measure provides Americans with greater flexibility in managing their 529 accounts.

Cherry stated, "We, as parents, saved and invested for your college education. We have extra funds that we didn't utilize for you, but we still wish to positively impact your life. As a result, we will transfer the funds from one tax-deferred compound vehicle, a 529, to another."

He stated that one is a payment for college and the other is an investment for retirement.

This option has limitations, however.

In order to be eligible for a transfer to a Roth IRA, a 529 account must have been established for at least 15 years, and there is a maximum of $35,000 that can be rolled over from a 529 account to a Roth IRA throughout an individual's lifetime.

The amount of money you want to transfer may require a multiyear project, and it will count towards your annual IRA contribution limit of $7,000 for investors under age 50 in 2024.

2. Change the beneficiary

If the original beneficiary of the 529 plans will not require the remaining funds, it is possible to change the beneficiary to another "qualified family member," such as a sibling, step-sibling, or parent, as per the IRS.

No fees or tax penalties are triggered when changing the beneficiary of a 529 plan.

3. Pay off student loans

Another option for utilizing leftover 529 funds is to pay off student loans, as suggested by Cherry. According to the Secure Act of 2019, savers can utilize funds for this purpose up to $10,000 per year for each plan beneficiary, as well as for each of the beneficiary's siblings.

4. Withdraw the money outright

If all else fails, families could withdraw 529 assets directly.

Withdrawing contributions from a 529 plan can be done tax- and penalty-free, but any earnings not used for qualified expenses may be subject to income tax and a 10% penalty. However, if your child receives scholarships, you can withdraw up to the amount of that scholarship for nonqualified expenses without penalty.

Instead of redirecting the money to another account or using it for qualified education expenses, families can have immediate access to it.

Cherry suggested that they could use the money for their own expenses or save and invest it for the future.