How to use 529 plan funds if your child doesn't go to college

Last updated: February 2022

Parents investing in a 529 college savings plan may wonder: "What if my child doesn't go to college? Do I lose my invested money?"

The simple answer is: No, you won't lose your money. The funds in a 529 plan can be used in a number of other ways if your beneficiary decides not to pursue higher education. Keep reading to discover other ways you may be able to use the funds in your 529 plan.

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Think beyond traditional 'college.'

Did you know your child doesn't necessarily have to go to a four-year college or university to use 529 funds? Any school that participates in a student aid program administered by the Department of Education may qualify for use of 529 funds, according to the Internal Revenue Service (IRS). This may include vocational schools or other secondary educational institutions. You may even be able to use the funds toward K-12 tuition expenses, says the IRS. Before making any withdrawals, it's a good idea to check with your plan's administrator to be sure the school qualifies.

Send another family member to school.

You can consider changing the beneficiary of your plan. Your new beneficiary typically needs to be a family member of your current beneficiary, according to the IRS. That could include another one of your children, a sibling, a niece or nephew, grandchildren or even a son- or daughter-in-law.

Go back to college yourself.

The new beneficiary you choose for your plan could also be you, says the IRS. If you have been thinking about getting a degree yourself, want to take just a few classes or are considering a master's degree, for example, you could use the 529 plan funds toward your own education.

Leave the money alone.

You can typically leave the money in your 529 plan invested for as long as you like, according to Forbes. That way, if your child decides later in life to attend college, the 529 funds would still be available. Otherwise, the money could eventually go to another beneficiary down the road.

Withdraw it (possibly with penalties).

You are typically allowed to withdraw unused money from a 529 plan. Keep in mind, however, that you'll owe federal and state taxes on the funds, along with an additional 10 percent penalty on your account's earnings, according to the Securities and Exchange Commission (SEC). However, there may be special circumstances where penalties are waived on a withdrawal.

For example, the SEC says if your child receives a scholarship, you may be able to withdraw 529 plan funds without a penalty. It's a good idea to discuss any potential tax or penalty implications with your plan's administrator prior to withdrawing funds so you know what to expect.

Have questions about starting a 529 plan or how you can use its funds? Talk to your tax or financial professional, or the administrator of your plan, for more information.