You were going for parent of the decade and saved enough in a 529 plan to fund your child’s private college education. Imagine your surprise when the little bugger decides not to go to college at all (or enrolls in a much less expensive school). Now there’s a bunch of money tied up in an investment vehicle with limited uses—but luckily there are still options for you.
Consider changing beneficiaries
You can change the beneficiary on a 529 plan to another family member, including your other children, yourself, first cousins, parents, grandparents, aunts, and uncles. Many 529 plans allow you to change the beneficiary on the plan once per year, so you can spread the love to other people in your family who have higher education aspirations.
Pay for pre-high school and post-college education expenses
A 529 can be used to cover other eligible education expenses before high school and after college. Up to $10,000 in tuition expenses per beneficiary can be paid from a 529 for both public and private elementary, middle, and secondary schools. Other restrictions on use may apply. Even if someone in your family isn’t of college age, you may be able to start cashing out some of the 529 savings once you’ve changed the beneficiary.
It’s also possible to use 529 funds to pay off up to a lifetime maximum of $10,000 in student loans for the beneficiary, which could come in handy if you can change the beneficiary to someone who already has student loans.
Use for other types of post-secondary education
A 529 can be used to pay for more than a traditional four-year university education. It can also be used to cover two-year programs, trade and vocational schools, and even schools located outside of the U.S. In general, any school that is eligible to participate in student aid programs through the Department of Education will also be eligible for 529 fund use. You can check if a U.S. school is eligible through Saving for College’s online tool.
Remember what counts as an education expense
A 529 plan can be used to cover more than just tuition. It can also be used to pay for other qualified expenses including required fees, books, supplies, and computer-related expenses. For students who are attending school at least half-time, even room and board can be covered through a 529 plan.
As a last resort, take the cash
Your money isn’t locked up forever if you can’t find a way to use it for some type of education expense for someone in your family. However, you’re looking at paying federal income taxes and a 10% penalty on the earnings portion of the 529 if you use your 529 for non-eligible expenses. (The contribution amount itself is not subject to income tax or a penalty because contributions are made with after-tax dollars.
One exception to paying the penalty is if the beneficiary receives a full scholarship to college—though you will still have to pay income taxes in that case.
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