- A 529 plan is an investment account where you can use
the money to pay for qualifying education expenses,
including K through 12 and college.
So what happens if your child decides not to go to college?
What if they end up joining the military
or starting their own business right after high school?
Can you still use the money?
In this video, we are sharing five ways
that you can use that 529 money and put it to good use.
(light music)
Hey guys, welcome back to The College Investor,
Investing and Personal Finance for Millennials.
If you guys are on TikTok, be sure to follow us on TikTok.
We are putting a whole bunch of content on there
that is a lot of fun, so be sure to follow us.
So let's get back to 529 plans.
If your child decides not to go to college
for whatever reason, that doesn't mean that that money
just sits and you can't do anything with it.
There's actually five different ways
that you can use that 529 money.
So the first thing is, just wait a few years, just wait.
You never know, they could change their mind,
there could be a gap year that your child takes
between high school and college and then decides
that they actually do wanna go to college.
So if you don't need to use the money right now
and your child decides they're not going to school,
they could change their mind and you could just leave
the money parked in that 529 plan
and let it continue to grow.
And you never know, they may decide to come back
and wanna go to school and you'll have the money ready
and waiting for them.
The second way you could still use that money
is to help another child pay for college.
This works especially well if you have kids
who are close in age range and you have one
that may be thinking about going to college
and the other one isn't, so all you need to do in that case,
is to just change the beneficiary.
Now sometimes you can do this using the same account,
other times you may have to open a separate 529 plan
and then transfer that money over from the old one
into the existing one, but you can still use that cash.
The third way that you can still use 529 money
is to just take the withdrawal penalty.
Now, if you withdraw money from a 529 plan
and you're not using it for qualifying education expenses,
you will incur a 10% penalty
but the 10% penalty may not be all as bad as it seems.
So for example, let's say over the course of 18 years
you contributed $27,000 into a 529 plan
and inside of that plan you earned $20,000 in just growth,
so you have a total of $47,000 in that account.
So when you go to withdraw that money,
you're only penalized on that $20,000,
not the entire $47,000 in that account,
so that 10% only applies to the growth,
which means in this example,
you'd pay $2,000 in that penalty fee.
So $47,000, you're paying 10% penalty fee
on the $20,000 growth, so you walk away with $45,000.
That's not too bad considering in California,
sales tax can be as high as 10%
so in that case, it's not all that bad.
The fourth way you can still use the money
is to make yourself the beneficiary.
So even though you may be older,
maybe you're approaching retirement or in retirement,
who says you can't use that money
to further educate yourself?
Maybe you wanna go back and get a master's degree
or maybe you wanna take some really interesting classes
that don't apply towards a degree
but you could still use that money
for qualifying education expenses if you're taking classes.
So that's also a way that you could use it,
just change the beneficiary's name
from your child's to yours and you can use the money.
The fifth way to use the 529 plan money
is to use it to pay for qualifying K through 12 expenses.
So maybe you have younger children,
maybe you have grandchildren that you can use this money for
to pay for their expenses.
Now this is federal law that went into effect
a couple years ago and state laws are going to vary
so be sure to check out our ultimate guide on 529 plans
that's going to list out what your state has put into place.
There are 37 states that are adhering to the federal law
and then there are other states
that obviously have their own thing set up,
so be sure you check that out for yourself.
But this is great news because then you can use
that money for K through 12 expenses
and not wait until college because sometimes your kid
doesn't actually end up going to college.
So to wrap up, five ways to use a 529 plan
if your child doesn't go to college.
First way is to wait a few years, see what happens.
The second way is to help another child.
The third way is to just take the withdrawal penalty.
Remember that withdrawal penalty is only on your earnings,
not what you contributed.
The fourth way is to make yourself the beneficiary.
And the fifth way is to use the money
for K through 12 expenses.
So for more information,
be sure to check out our ultimate guide on 529 plans.
That's going to walk you through your state,
its specific information surrounding 529 plans.
And be sure to follow us on TikTok @thecollegeinvestor.
(light music)