What happens if my 529 savings exceed the cost of college? Do I lose my money?

No.  You may pay penalties for spending your excess 529 savings on non-education-related expenses, but you do not lose your money.

If you withdraw funds from your 529 account for non-education related expenses, you are subject to the following penalties:

• Income taxes (federal, state and local) on the earnings portion of the withdrawal (your contributions are not taxable, but earnings are)
• A 10% penalty on the earnings portion of your withdrawal, payable to the federal government.
• You may also owe state taxes in the contribution portion of your withdrawal if you claimed deductions or tax credits related to your 529 account savings.

To avoid these penalties on your excess 529 savings, you can change the beneficiary of the 529 account, allowing you to use the excess funds toward the education of someone else, such as another child, a relative, or even yourself or your spouse.

Deposits into a 529 account are considered a gift by the IRS, so the gift tax may apply if your contributions and other gifts total more than $18,000 per parent per child per year (two parents can gift up to $36,000 total per child per year with no gift tax consequences). If you contribute more than $18,000 per parent per child, consult a tax professional to understand your options.