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