What to Do with a 529 Plan If Your Child Does Not Go to College


Every parent who has a 529 plan will always smile when footing college expenses for his or her children. A 529 plan makes sure you never worry when your child goes to college, but what happens if your child or the beneficially decides not to join college after high school?

If your child decides not to attend a four-year college and you decide to use the money on non-qualified expenses, your earnings will be subject to ordinary income taxes and a 10% additional tax penalty upon withdrawal. That is not something you want to happen after contributing for a long time.

Fortunately, there are ways to avoid paying taxes and penalties if your child does not go to school. Here is what you could do to avoid those paying penalties and taxes.


Send yourself to college or graduate school

Going back to college or graduate school is one of the best options when your child fails to join college. All you need to do is name yourself as the beneficiary to use the money.

Pay for expenses at a technical or vocational school

It is not mandatory to go to a college or graduate school to be eligible for tax-free withdrawal from a 529 plan. You can as well join a technical or vocational school and use your money. You can use the Federal School Code Search to know school eligibility for the 529 plan.

Send another family member to college  

You can change the beneficiary to another family member. Luckily you have the freedom to add any family member as IRS does not limit its definition to immediate family. You can add:

  • Brother, sister, stepbrother, or stepsister
  • Father or mother or ancestor of either
  • Brother or sister of father or mother
  • Son or daughter of a brother or sister
  • Stepfather or stepmother
  • Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law
  • Son, stepchild, daughter, foster child, adopted child, or a descendant of any of them
  • The spouse of any individual listed above
  • First cousin

Claim the money without 10% penalty


There are a few instances you may claim the money without incurring the 10% penalty on the earning. These instances include:

  • When your child joins military school after high school and now plans to attend college using veterans’ benefits.
  • Your child is employed and receiving employer-provided educational assistance.

Check out the IRS site for more information about exceptions to the 10% additional tax.

Rollover funds to an able account

The latest changes allow account owners to transfer money from 529 plans to ABLE accounts for beneficiaries with disabilities. With an ABLE account, you can invest funds for costs associated with disabilities without interfering with disability benefits from Supplement Social Security Income (SSI) or Medicaid.

Pay for elementary or secondary school

Another change is that which permits the use of 529 plan funds for school tuition before college.

Wait a while

Don’t give up because your child decided not to join college. Be patient; you might be surprised two or three years down the line your child coming back and saying he is ready to enter college. If you still have the cash in your account, you are not going to be a troubled parent.

Leave a legacy

grand child

We talked about naming anyone in the immediate family as a beneficiary. Now instead of using that money in your account in other ways, let it sit there until your child have a child. You can then name your grandchild as a beneficiary. That way, you will allow your child to focus on saving retirement and your grandchild to learn seamlessly.


Saving for college expenses is a great idea, and the earlier you start, the better. The above are some of the great options you can consider if your child fails to join college after high school. So, don’t let the idea of your child not joining college stop you from saving.   

Contact us to learn more about college saving strategies.

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