By Tim Gorrell, Executive Director of Ohio Tuition Trust Authority
June 12, 2017

Congratulations! Your child worked hard through all the challenges of high school and has earned a scholarship to their dream school. And congratulations! You worked hard to save money in a 529 plan to pay for college. So now what do you do?

If your child did receive a full ride, you can save the funds in your 529 plan account to cover their continuing education such as graduate, law, or medical school. If your scholarship doesn’t cover the entire cost of a post-secondary education or training, your 529 account is there to cover the difference. Withdrawals are tax free when used to cover 529-qualified higher education expenses, which include tuition, room and board during any academic period the beneficiary is enrolled at least half-time, mandatory fees, books, supplies, computers and related equipment and services (as long as they’re used primarily by the beneficiary during the years at school), and certain expenses for a special-needs student.

If your child truly will not need the funds in your 529 account, then you can transfer those funds to another beneficiary, who mst be a family member, which list includes siblings, spouses, parents, children and cousins, among others— in order to avoid tax consequences. There are no time limits on 529 college savings plans; therefore, you could hold onto the account for your future grandchildren’s college costs. In most cases, you could even name name yourself as the new beneficiary! By rolling over these 529 plan assets, you can use the money already set aside for college expenses for your own continuing education or training.

Also, you can choose to withdraw up to the same dollar amount as the scholarship from your account. It will be considered a non-qualified withdrawal but only the earnings portion of the amount withdrawn will be subject to ordinary income tax; no additional 10% federal tax penalty on earnings applies. If you withdraw any amount over the amount of the scholarship, you will also owe the 10% federal tax penalty on earnings. If you do take a non-qualified withdrawal, make sure to check with your state to determine if there are any state tax penalties that may apply.

So yes, your 529 plan is still a vital component of your college-saving strategy even if your child does earn a scholarship. Very few scholarships cover 100% of the costs, so a 529 plan is perfect for filling any gaps. If you haven’t opened an account yet, learn how to get started.

About the author:
Tim Gorrell is the executive director of Ohio Tuition Trust Authority. For more than 25 years, Ohio Tuition Trust Authority has sponsored and administered CollegeAdvantage, Ohio’s 529 College Savings Program. CollegeAdvantage now oversees more than 637,000 accounts and over $10.3 billion in assets. Visit or call 1-800-AFFORD-IT (233-6734) to learn more.