In 2013, only 66% of high school graduates enrolled in a college or university.* That means 34% chose another path. What if your child or grandchild is part of that 34%? Does it make sense to keep investing in the 529 account for him or her?
Yes, it does. 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.
Let it ride
Even if your beneficiary isn't going to college now, that may not be his or her final decision. Students may wish to take a break after high school to travel, work, or just take some time to plan their futures. And while they take that break, 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 just in case your beneficiary changes his or her mind again.
Consider other education options
A 4-year college isn't the only type of higher education that 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, you can use the Federal School Code search. If your beneficiary wants to travel, there are also qualified programs abroad.
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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.
Pay other qualified expenses
What if your beneficiary does decide 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.**
Use the money for something else
If none of these options fit your situation, the money you contributed to your 529 account is still yours to use as you wish. However, you'll have to pay federal and state tax on the earnings, as well as a 10% federal penalty on the earnings. You may want to consult your tax advisor before taking this step.