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How long can money stay in a 529 plan?

If you've saved for your child's education using 529 plans but you don't end up spending all the money in the account, what are the available options? First, you can leave the money in the account. Unlike Coverdell accounts, there is no requirement to liquidate the account by a certain age. Money can stay in the account and could eventually be used for graduate school -- even if that is 10 or 15 years later. In fact, the money can remain in the plan indefintely as long as there is a living beneficiary.

Money in the account can also be used by other members of your family. A younger sibling (or step-sibling) could use the money and so could a parent -- even a first cousin could make use of the funds.

If graduate school never materializes as an option and there is no other beneficiary on the horizon, money can be withdrawn from the plan and spent for other needs but the earnings portion of the withdrawal will be taxable and there will also be a 10 percent penalty imposed. If the account was not fully used because the student received a scholarship, there would be no penalty imposed on the withdrawal (assuming it was less than the amount of the scholarship).

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