I have $100,000 in a 529 plan, but my son has decided not to attend college, what should I do?
Posted by Anonymous in: EducationWhen my son was born I started contributing to a 529 plan for my son's college education. He has decided to go into the Marines and not attend college so I'm lost as to what to do with the money. Should I leave the money in the 529 account? What penalties would I have if I took the money out? Do I have any other options?
| Comment | share:       |
Leave the money in the 529
If you think there is a chance your son may want to attend a higher education institution (college, culinary school, golf academy, etc) in the future you may just want to leave the money in the plan. There isn’t a time limit or age limit on when your son can use the money.
Change beneficiaries
Do you have any other immediate family members who might be pursuing a higher education? If so, you can change the beneficiary on the plan and they can use the fund for their education. The definition of who can use the funds includes stepchildren, cousins, aunt, uncles, etc. To change a beneficiary, simply call your 529 plan provider and ask them what their process is to change a beneficiary.
Pursue a higher education yourself
Yes, even you use the money. If you don’t have any other children or family that you want to use the money for, you can use the funds and go back to school yourself. All you need to do is name yourself as the beneficiary. Remember there is not a minimum number of hours that must be taken; however, if you are less than half-time basis you can’t use 529 funds for room and board.
Please note that the money must be left in the 529 plan and used from the 529 plan for these options to work. If you withdrawal any of the money out of the plan you must pay 10% federal tax penalty and federal income tax on any earnings.
This answer made available by the financial advisor is for educational purposes only and does not create a financial advisor / client relationship. By using or by participating in FinanceAnswers.com you understand there is no financial advisor client privilege between you and the financial advisor responding. FinanceAnswers.com should not be used as a substitute for a competent financial advice from a licensed professional financial advisor that practices in the subject practice discipline and with whom you have a client relationship along with all the privileges that relationship provides. The information and materials provided are general in nature, and may not apply to a specific factual or financial circumstance described in the question - details may be left out which would make the answer unsuitable
Posted 9 months ago by Brian Robertson (view professional profile)
 In many states, if you take a non-qualified distribution of 529 funds you may be subject to a recapture of tax deductions taken upon making contributions to the plan. In other words, if you contributed $10,000 to a 529 plan and took a state income tax deduction, when you pull that money out of the plan for non-qualified purposes, your state may require you to pay back the deduction. This recapture is in addition to the 10% penalty and ordinary income tax on growth in the account as noted in the previous response. Posted 7 months ago by James Blankenship CFP (view professional profile) |
