6 Ways To Use An Old CHET 529 Plan, #82
Every parent wants to provide the brightest future possible for their child. That includes helping them save for college! But sometimes the money you set aside for higher education is no longer needed. Scholarships could cover it or a change of plans could render it unnecessary, leaving you with a large pile of cash. What now? On this episode, I’ll show you six ways to use an old 529 College Savings plan so you don’t pay the penalty for an unqualified withdrawal.
You will want to hear this episode if you are interested in...
The surprising people who can benefit from a 529 account [2:14]
Yes, doing nothing is an option [5:04]
529 accounts and student loans [6:20]
Using a 529 account to create a legacy [7:25]
Taking advantage of penalty-free scholarship withdrawals [8:22]
Using the money for non-qualified expenses [9:39]
Change of plans? No problem!
So your high school senior just told you they’re starting a business instead of going to college…now what? You’re happy for them, but what do you do with all the money you saved in that 529 College Savings plan? Thankfully, you have options! At any time you can transfer the beneficiary to another qualifying family member. If you decide to make this change you’re not turning over control of the money to anyone, just naming a beneficiary for when you decide to release the money. If your name is still on the account, it's still your money.
Also, most people don't realize they can make themselves the beneficiary of a 529 account. If you’ve been planning to continue or go back to school you can use the money to pay for your own educational costs. However, it’s not only limited to pursuing education for a career. Have you been dreaming about going to culinary school in France? Or maybe learning from the pros at a golf college? A 529 plan can be used for your passions as well as a degree.
Get the most out of your 529 plan
One of the beautiful things about a 529 College Savings plan is that it is not subject to a time or age limit. You never have to take a required distribution so if you’re kid decides to skip college to start a band, you have time to figure out your next move for the money. Some people choose to keep growing the account to build a legacy. You can leave the money in a 529 for a lifetime. Upon passing, the account will transfer to whoever is listed as the successor. The money just keeps growing! If down the road someone in your family needs help with school, it would be available.
So what about scholarships? Are parents penalized because their child worked hard and figured out how to pay for school? Not at all. Anytime your student gets a scholarship, you can withdraw up to the amount of that scholarship to spend on anything you want. Keep in mind that you still need to pay income tax on any gains in the account. Meaning, if you’ve contributed $20,000 to the 529 account and through investment, it’s now worth $30,000, you would need to pay income tax on the $10,000 increase if you empty the account. Because a 529 uses pro-rata distribution, you can’t differentiate between principal and gains. For more 529 account tips, listen to this episode!
Resources Mentioned
4 Surprising Places to Use 529 Plan College Savings (Article)
Who is a Member of the Family of a 529 Plan Beneficiary? (Article)