Key Points

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

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

  • Nonetheless, if y'all decide to utilize the money for something other than qualified pedagogy expenses, you will have to pay income taxes plus a x% penalty on the earnings.

Dear Carrie,

We've been saving in a 529 account for years for our son'due south education, but information technology now looks similar he won't be going to college. Are there other options for using this money?

—A Reader

Dear Reader,

One of the great—and challenging—things about having kids is that they can surprise you at every turn. While you tin save diligently for their education, you can't predict what their talents or interests will be. Trust me—equally a mother of three, I know from experience!

I think many of u.s. envision a four-yr higher for our kids, but that'southward only one of a myriad of choices, especially today. And so, does that mean a 529 business relationship is no longer a good thought? Admittedly non. Because while a 529 is mostly referred to as a higher savings account, information technology can be used for other types of education likewise college. And recent taxation laws give you even more options.

The near common—post-loftier school didactics

In that location are lots of ways kids tin go along their pedagogy post high school, and a 529 is there to aid them. Assets in a 529 can be used at any eligible establishment of college pedagogy. That includes not only four-year colleges and universities just as well qualifying 2-year associate degree programs, trade schools, and vocational schools—both at dwelling and abroad. This means that whether your child wants to be a computer expert or cosmetologist, an artist or an electrician—and chooses to pursue mail service-secondary preparation in their chosen field—there'due south a practiced hazard y'all tin can pay for that preparation with your 529 avails.

In your son's case, if he has another blazon of school in mind, observe out if it qualifies for 529 assets. More often than not speaking, to qualify, a school must be eligible to participate in student help programs offered by the Department of Education. Savingforcollege.com has an easy online tool for determining if a detail school qualifies. Yous just need to take the fourth dimension to do a lilliputian enquiry—or better yet, take your son practice it.

Possibilities before high school—and after college

A lot of parents will also exist happy to know that the Tax Cuts and Jobs Human action of 2017 gives families the option to use 529 assets to pay for up to $x,000 in tuition expenses at elementary, middle, or secondary public, individual, or parochial schools. (Note that different states may have different restrictions.)

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

Flexibility to change beneficiaries

Even if you don't utilize the funds for your son's didactics, you still have options. You opened the 529 for the benefit of your son, merely the account belongs to you, and you have the correct to alter the beneficiary.

Equally long as the new beneficiary is a family unit member—a sibling, kickoff cousin, grandparent, aunt, uncle, or even yourself—the money can exist used for qualified education expenses without incurring income taxes or penalties. Qualified expenses include tuition, required fees, books, supplies, calculator-related expenses, even room and board for someone who is at least a half-fourth dimension student.

Most 529 plans allow y'all to change the beneficiary once a year, and so that leaves the door broad open for future use. You could even convert information technology back to your son'south benefit should his plans change.

This flexibility gives y'all a lot of options. Let's say you decide to get back to school. Y'all make yourself the casher and use 50% of the 529 avails for your studies. What exercise y'all exercise with the balance? Y'all could simply change the beneficiary to another member of your family unit who could use it for their own qualified educational activity expenses.

The problem with taking the cash

Taking the cash is always a possibility, but it will cost you. If assets 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 casher gets a full scholarship to college, the penalty for taking the cash is waived.)

Since one of the main benefits of a 529 account is the federally revenue enhancement-free earnings, I'd think carefully earlier cashing it out. And, really, it might exist wise to sit down tight before making any decisions. Your son may surprise yous once again by going in a whole new direction, and you'll be glad yous've kept those 529 assets in reserve.

A word of encouragement

While there may be some skepticism nearly the value of college these days, a 2019 report by the College Board found that higher teaching not merely 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 instruction, I encourage you to go along talking to him about his interests and means to develop his skills—for his financial future as well as his future happiness.

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

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