Ross Polking Thumbnail Photo

Saving for a child’s college expenses is becoming increasingly difficult. As a parent, the competing forces of tuition inflation and one’s own retirement preparedness can bring about stress over trying to adequately save for both. There is a balance to be struck between the two, keeping in mind that kids can get jobs and take out loans. Retirement, ideally, should not include you getting a job or taking out a loan. That’s why it’s called, “retirement.”

In the event you are helping a child or grandchild save for some form of secondary education, the best advice is to start now and use a 529 plan. 529 plans (named specifically for the section of the federal tax code that allows for this particular savings feature) allow the account holder to contribute to a fund that a) in some instances, will provide a state income tax deduction (amount differs by state), b) grows tax-free, and c) can be withdrawn tax- and penalty-free, so long as the dollars are used for college expenses.

While the decision to use a 529 plan seems obvious, the primary concern for potential users is the possibility the beneficiary (student) may not actually attend college. In 2014, 68% of high school graduates enrolled in a college or university.* Translated: 32% chose a path other than college. What if your child or grandchild is part of that 32%? Does it make sense to keep investing in the 529 account given this uncertainty? The answer may very well still be “yes.” Keep in mind that the account owner, not the beneficiary, has full control of the money in a 529 account. So, even if your beneficiary’s plans don’t include college, you have several options for how to use the money in your 529 account.

a. Leave it alone – Even if your beneficiary isn’t going to college now, that may not be final. Students might first decide to take a break after high school for travel or work. And while they take that time off, their 529 account can still be at work. The benefits of a 529 account don’t expire by a certain time or when the beneficiary reaches a particular age. So, you might choose to keep it open in the event college becomes a reality.
b. Consider other education options – A 4-year college isn’t the only type of higher education you can pay for with your 529 account. Your beneficiary could attend a trade or vocational school, or participate in a career-training program. To find out if a specific school or program is eligible, go to If your beneficiary wants to travel, there are also qualified programs abroad.
c. Change your beneficiary – If your original beneficiary isn’t going to use the money in your 529 account, you can choose a new beneficiary from his or her immediate family. Eligible family members include the original beneficiary’s siblings, parents, cousins, nieces, nephews, aunts, uncles, grandparents, spouse, and children. There may be gift or generation-skipping tax consequences when you change the beneficiary, so you may wish to consult a tax advisor before doing so. Since 529 accounts have no age restrictions or time limits by which the money in the account must be used, you can name yourself as the beneficiary of your account as long as you’re an eligible family member of the original beneficiary. Provided you use the money to pay for qualified higher-education expenses at an eligible institution, you can use your account to pay for your own education.
d. Pay other qualified expenses – What if your beneficiary decides to go to college, but he or she receives a scholarship or grant? Remember that scholarships and grants don’t always cover the entire cost of college. Other qualified higher-education expenses–books, supplies, and room and board–will still need to be paid. That’s where the money in your 529 account could come in handy.

If none of these options fit your situation, the money you contributed to your 529 account is still yours to withdraw and use as you wish. However, you’ll have to pay federal and state tax, as well as a 10% federal penalty, on the earnings. You may want to consult your tax advisor before taking this step.

529 plans are an excellent savings vehicle for future college attendees. Even if this future is uncertain, it’s clear that other good options for the monies exist. Don’t sit idle and do nothing in the way of preparing. Time is not necessarily on your side. Have a plan and stay diversified along the way.

*Source: U.S. Bureau of Labor Statistics.

PLEASE NOTE LIMITATIONS: Please see Important Disclosure Information and the limitations of any ranking/recognitions, at A copy of our current written disclosure statement as set forth on Part 2A of Form ADV is available at