Options For Your 529 Accounts If The Kids Don’t Go To College

Anybody who’s ever opened a 529 college savings account for their child knows that while these accounts tend to be some of the best options around for college saving there’s one little rule about them that tends to hover over your head like a black cloud.  I’m talking about the provision where the money in the account HAS to be used for higher education expenses or it will be taxed and penalized.

Nobody knows with 100% certainty if Junior is going to head off to college someday.  While saving in a 529 college savings account requires a small leap of faith, you’ll be happy to discover that there are options for you other than biting the bullet and eating the penalty if your child does in fact choose to forgo college.  Assuming that you’re kid doesn’t get an academic scholarship to college (which would, in fact, allow for a penalty-free withdrawal from a 529), here are a few things you can do with that unused 529 account.

Graduation

Change the beneficiary to another child

If you have another child in the house, your choice might be as simple as this.  There’s no penalty involved if you want to change the beneficiary on a 529 account and in many cases this change can be completed with a simple form or a phone call.  If one child doesn’t plan on going to college, simply change the beneficiary his or her sibling and you’re all set.

If another child is not an option, other family members can work as well.  According to IRS rules, other family members who could be named as beneficiaries include brothers, sisters, nieces, nephews, cousins and even in-laws.  In other words, you have a lot of options for people you could name as beneficiary.

Change the beneficiary to yourself

If none of those choices seem to fit the bill (or you’re just looking to head back to school yourself), you can always name yourself as the beneficiary.  People may assume that 529 accounts are just for kids or teenagers but the 529 account is open to anybody who wants to save money for college.

If you’re looking to head back to school to complete your undergraduate degree, get an MBA or even take an elective course or two at a local community college, you can use the money to pay for your own tuition bills and get the same tax benefits that anyone else would receive.

Leave the money where it is

Nobody in your immediate family looking to head off to college any time soon?  Your best bet might just be to leave the money sitting where it is.  The nice thing about 529s is that there’s no mandatory withdrawal deadline for the money.  Unlike IRAs that have required minimum distributions upon reaching retirement age or UGMAs that require you to transfer ownership over to the minor beneficiary upon reaching a certain age, 529 money can sit in the account indefinitely.

That means you can wait until your child possibly changes his or her mind on college, you want to take a class or two in your free time or a grandchild comes along that you want to gift the money to.

You do actually have a number of choices available for your college savings if you think you won’t be using it on your child’s college bills.  Knowing them will help make sure that money stays in your pocket.

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Author Info

This post was written by David Dierking. David lives outside Milwaukee, Wisconsin and has been working in the financial services industry for over 13 years with a background in investments, accounting, and marketing. He earned his Chartered Financial Analyst designation from the CFA Institute in 2004 and was recently published in the Milwaukee Business Journal. You can also check him out at The Ultimate Fit Challenge

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