(WTNH) — A college education can cost students upwards of hundreds of thousands of dollars, and in order to ease that burden, lots of parents start putting money aside when their child is young.
But what do you do with that money if your child chooses not to go to college?
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 and offers significant tax and financial aid advantages over saving in non-specialized accounts,” said Mark Kantrowitz, a college savings expert.
But what happens if your child doesn’t attend college? You have options, for example, vocational schools and apprenticeships are also qualified expenses.
“Too often people think college means that you, oh, 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,” said Kantrowitz.
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 could be used for a sibling, the parents themselves, or even a grandchild.
“The only requirement is the new beneficiary must be a member of the family of the old beneficiary,” Kantrowitz added.
If the beneficiary has special needs, you can also roll over the money into what’s called an able account. It can help pay for disability-related expenses.
If you want to withdraw money for non-educational purposes it will come at a cost. 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.