What happens if I open an education savings plan for a child who doesn’t end up going to college?
Two common types of education savings accounts are Coverdell Education Savings Accounts and 529 college savings plans. Money in a 529 can be used for qualifying accredited post-secondary education expenses with no age limitation.
If the funds won’t be used for educational expenses of the named child, you‘ll have two basic options:
- The account can be re-designated to another family member without tax consequences, including to:
- Other children in the family, including stepchildren
- Parents and stepparents
- Nieces and nephews
- First cousins
- Aunts and uncles
- Spouse of the designated beneficiary
- Spouse of any of the above
- The account can be closed any time, with the balance distributed for non-educational expenses. The earnings will be taxed as income at the time of distribution and a mandatory 10 percent federal tax penalty will be imposed. The penalty is waived in the event of the death or disability of the beneficiary, or if the beneficiary receives a scholarship.
This is not a complete description. Contact a COUNTRY Financial representative about important differences, retrictions, limitations, etc.