(WHTM) — A college education can cost students hundreds of thousands of dollars. In order to ease the burden, many parents start putting aside money when their children are young.
Saving for college is on many parents’ minds, and opening a 529 plan account is one way to do it.
“A 529 plan account is a specialized savings vehicle for college costs. It offers significant tax and financial aid advantages over saving in non-specialized accounts,” said college savings expert Mark Kantrowitz.
But what if your child doesn’t go to college? You have options. For example, apprenticeships and vocational schools are also qualified expenses.
“Too often, people think college means that it’s got to be a bachelor’s degree, and it doesn’t include an associate degree or certificate or a graduate school. But in this case, it includes all of them,” Kantrowitz explained.
But if higher education is out of the question, you can leave the money in the 529 plan and continue accumulating tax-free earnings. The account owner, typically a parent, can change the beneficiary of the account so the funds can be used for the child’s sibling, the parent themselves, or a grandchild.
“The only requirement is the new beneficiary must be a member of the family of the old beneficiary,” Kantrowitz said.
If the beneficiary is special needs, you can also roll over the money into what’s called an ABLE account. “One of my children is autistic and may not be going to college. Well, I can move the money into his ABLE account to help him pay for his disability-related expenses,” Kantrowitz noted.
You can withdraw the money for non-educational purposes, but it will cost you. You can take what’s called a non-qualified distribution. The earnings portion of the withdrawal will be taxed at the recipient’s tax bracket rate, plus there will be an additional 10% tax penalty.