True or False?
If my kid doesn’t go to college, I’ll lose the money.
False! Amy Irvine, financial planner at the Rooted Planning Group, explains what’s really possible.
True or False? If my kid doesn’t go to college, I’ll lose the money.
Amy: Many people share the misconception that if they save in a 529 plan for their child and don’t end up needing the money, they won’t be able to use it. But that is simply not true.
What can I do with the money if they don’t go to college?
Amy: Good news, all is not lost. People are surprised that there are multiple ways you still can use the funds. Here are five common scenarios and ways to access the money:
- Pay off student loans. As a parent, you may have your own student loans. Up to $10,000 of the 529 can go towards them.
- Pay for trade school. 529s can now be used for trade schools like cosmetology, technical, or culinary schools. Have a golfer in the family? It can even be used for a golf academy. We call that a hole in one!
- Fund another education. If one child doesn’t need the fund, it can be transferred to another child or contributing family member’s education.
- Withdraw it. If your child is a brainiac and goes to college on a scholarship, you can withdraw the amount (up to the scholarship) without any penalty. Only the earnings portion is taxed.
- Have a prepaid plan? Don’t sweat. You can still get that money out. The return on that money will just be low.
And, if none of these scenarios apply, you can still access the money through a non-qualified distribution. You will just pay a 10% penalty tax on the earnings portion.
Now that we know all the ways we can access the money, how can I get started?
Amy: We understand that this process is very confusing, and it can be hard to figure out where to start. The most important piece is just starting. So, here are three things you can do to get on the way:
- Talk to a financial planner. I will admit, I’m completely prejudiced, but I think working with a financial planner is the first action step. There are so many avenues that you can go down to help you determine the complexities of plan distributions and choices.
- Make some choices. Do you save in a private 529 plan? A state 529 plan? A combination of the two? You will need to determine the specifics of the savings plan.
- Automation. Automation. Automation. Once you’ve determined what plan and how much you should be saving, then it’s all about automation and making sure it’s set up on auto-save.
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