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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 Coverdell can be used for qualifying primary, secondary, and accredited post-secondary education expenses until the child turns 30. Money in a 529 can be used for qualifying accredited post-secondary education expenses only, but there’s no age limitation.

For either of these account types, if the funds won’t be used for educational expenses of the named child, you‘ll have two basic options:

  1. The account can be re-designated to another family member without tax consequences, including to:
    • Other children in the family, including stepchildren
    • Grandchildren
    • Parents and stepparents
    • Nieces and nephews
    • First cousins
    • Aunts and uncles
    • Spouse of the designated beneficiary
    • Spouse of any of the above


  2. 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.