One of the challenges about having kids is that they can surprise you at every turn. Financial professionals like myself encourage saving for your child’s education, but what happens if they do not go to college? Does that mean a Section 529 education savings plan is no longer a good idea? Absolutely not. Because while a 529 plan is generally referred to as a college savings account, it probably should be called a post-secondary education savings account. That’s because a 529 plan can be used for other types of education besides college.
Most people don’t realize that money from a 529 plan can be used at any eligible institution of higher education. That includes not only four-year colleges and universities, but also qualifying two-year associate degree programs, trade schools and vocational schools—both at home and abroad. Also there is legislation currently being proposed in Congress that would expand the use of 529 plans even further.
If your child decides not to attend college you still have options. Most 529 plans allow you to change the beneficiary once a year, and as long as the new beneficiary is a family member the money can still be used for qualified education expenses without incurring income taxes or penalties.
If someone does decide to cash out their Section 529 plan, the earnings are subject to income taxes and a 10% penalty.