Key Points

  • A 529 account can be used for other types of education besides higher, including trade and vocational schools and more.

  • Equally the 529 account owner, you lot always have the correct to change beneficiaries to another family member—or even yourself.

  • Yet, if you decide to utilize the coin for something other than qualified education expenses, y'all will have to pay income taxes plus a 10% penalty on the earnings.

Dear Carrie,

We've been saving in a 529 account for years for our son's instruction, simply it now looks like he won't be going to college. Are there other options for using this coin?

—A Reader

Dearest Reader,

1 of the smashing—and challenging—things almost having kids is that they can surprise yous at every plough. While you can save diligently for their education, you tin't predict what their talents or interests volition be. Trust me—every bit a mother of three, I know from experience!

I think many of us envision a four-year college for our kids, but that'south just one of a myriad of choices, especially today. And then, does that mean a 529 account is no longer a adept idea? Absolutely not. Because while a 529 is by and large referred to as a higher savings account, information technology can be used for other types of instruction besides college. And recent taxation laws give you fifty-fifty more options.

The most common—post-high schoolhouse education

In that location are lots of ways kids can proceed their education post high schoolhouse, and a 529 is there to aid them. Assets in a 529 can be used at any eligible establishment of college education. That includes not but four-twelvemonth colleges and universities but also qualifying ii-year associate degree programs, merchandise schools, and vocational schools—both at home and abroad. This means that whether your child wants to be a computer practiced or cosmetologist, an artist or an electrician—and chooses to pursue post-secondary training in their called field—at that place's a adept chance y'all can pay for that training with your 529 assets.

In your son'due south case, if he has another type of school in mind, discover out if information technology qualifies for 529 assets. Generally speaking, to qualify, a school must be eligible to participate in student aid programs offered past the Section of Education. Savingforcollege.com has an easy online tool for determining if a particular schoolhouse qualifies. Yous just need to take the time to do a little research—or better yet, have your son do it.

Possibilities before loftier schoolhouse—and after college

A lot of parents will as well be happy to know that the Revenue enhancement Cuts and Jobs Deed of 2017 gives families the option to use 529 assets to pay for up to $10,000 in tuition expenses at unproblematic, heart, or secondary public, private, or parochial schools. (Annotation that dissimilar states may accept dissimilar restrictions.)

Plus—and this is expert news for parents and college graduates alike—the SECURE Deed of 2019 allows up to $10,000 of 529 assets to exist used to pay off existing educatee loans. So wherever a student is on their educational path, a 529 can help ease the way.

Flexibility to change beneficiaries

Fifty-fifty if you don't employ the funds for your son'due south education, y'all yet have options. You opened the 529 for the do good of your son, merely the account belongs to you, and you lot take the right to change the casher.

As long as the new beneficiary is a family unit fellow member—a sibling, first cousin, grandparent, aunt, uncle, or even yourself—the money can be used for qualified teaching expenses without incurring income taxes or penalties. Qualified expenses include tuition, required fees, books, supplies, computer-related expenses, even room and lath for someone who is at least a half-time educatee.

Most 529 plans allow you to change the beneficiary once a year, then that leaves the door broad open for future use. You could even convert information technology back to your son'southward benefit should his plans alter.

This flexibility gives you a lot of options. Permit's say yous make up one's mind to go back to schoolhouse. You make yourself the beneficiary and use 50% of the 529 avails for your studies. What do you do with the balance? You could simply change the beneficiary to another member of your family unit who could utilise information technology for their own qualified pedagogy expenses.

The problem with taking the cash

Taking the greenbacks is always a possibility, but it will cost you. If avails in a 529 are used for something other than qualified education expenses, you'll have to pay both federal income taxes and a x% penalty on the earnings. (An interesting side note is that if the beneficiary gets a full scholarship to higher, the penalty for taking the cash is waived.)

Since 1 of the main benefits of a 529 account is the federally tax-complimentary earnings, I'd think advisedly earlier cashing information technology out. And, actually, it might be wise to sit tight before making any decisions. Your son may surprise y'all once more by going in a whole new direction, and you'll be glad you've kept those 529 assets in reserve.

A discussion of encouragement

While there may be some skepticism almost the value of college these days, a 2019 report past the College Board found that higher education not just leads to greater employment opportunities and higher lifetime earnings, it's also associated with a healthier lifestyle. Whatever your son's current feelings about continuing his didactics, I encourage you lot to keep talking to him about his interests and ways to develop his skills—for his fiscal time to come as well equally his futurity happiness.

Have a personal finance question? Email usa at askcarrie@schwab.com . Carrie cannot respond to questions directly, only your topic may be considered for a hereafter article. For Schwab account questions and full general inquiries, contact  Schwab.

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