529 Plan and College Savings

Archive for August, 2005

Question: What happens to the money in a 529 Plan if my son gets a full scholarship or decides not to go to college?

Do I get penalized and taxed extra if I take the money out for other uses?

Answer: If your son gets a full scholarship you can withdraw the amount of the scholarship from the 529 account penalty-free; however you will owe taxes on any earnings withdrawn.

If he decides not to go to college you can change the beneficiary of the account to a “family member” which is defined as anyone such as a sibling, step parent, spouse, or niece or nephew, for example (you can contact the administrator of your plan for your options.) If you choose not to change the beneficiary on the account and the funds are withdrawn and not used for higher education expenses, you will owe income taxes (whatever your income tax rate is for the year withdrawn) and an additional 10% penalty on the earnings portion of the withdrawal.

College: Getting There with Felicia Everett State Farm Agent