By: David Lawhorn, 529 Plan Manager, Kentucky Education Savings Plan Trust (KY Saves 529)

March 19, 2019

As my family nears the end of our only child’s undergraduate college experience, we have a dilemma. Our dilemma is one that has come about from our daughter’s strong academic performance, a solid year-over-year improving collegiate student-athlete career, and selecting a reasonably priced public university.

The dilemma — we have investment funds remaining in our 529 college savings plan. It’s a great quandary to have as a family.

Here are a few options we are considering for surplus 529 funding:

  1. Take the same dollar amount as the scholarship from the 529 plan. It will be considered a non-qualified withdrawal so the earnings portion of the withdrawal will be subject to taxation. However, as this is a non-qualified withdrawal due to a scholarship, the 10 percent federal tax penalty will be waived.
  2. Let daughter know how much is remaining in the 529 account and availability of funds to help pay for possible graduate school.
  3. Tell daughter that her remaining 529 funds can be held for her possible future child as a jump-start to college planning for the next generation in our family.

We are a family who started saving for college with very modest contributions that, over time, increased a little each year. The approach has been very beneficial for our family and our daughter’s post-college future.


About the Author

David Lawhorn is the state employed plan manager for the Kentucky Education Savings Plan Trust (KY Saves 529), and his wife of 26 years has been a public school teacher and high school guidance counselor during their 19-year college savings mission for their daughter. For more information about Kentucky’s 529 college savings plan, visit or call 877-598-7878.