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If your child decides not to go to college, you basically have three options: do nothing, change the beneficiary, or withdraw the money.

First, you can leave the funds in the account. It’s possible that your child will change his or her mind about college at some point in the future. 529 savings plans generally allow you to keep the funds in the account indefinitely (however, prepaid tuition plans generally require that funds be used within 10 years of the date of expected college entrance). Check the details of your 529 plan for more information.

Second, you can change the beneficiary. All 529 plans allow the account owner to change the beneficiary. As long as the new beneficiary is a qualifying family member, no taxes or penalty will be due. Check with your 529 plan for more details.

Finally, you can withdraw the funds and use them for a non-educational purpose. (You can also do this if you need to use the 529 funds before your child goes to college.) The drawback to this option is that you will owe federal income tax and a 10% penalty on the earnings portion of any withdrawal used for a non-educational purpose, and probably state income taxes too. (An exception to the 10% penalty exists if the beneficiary were to die or become disabled and not go to college.)

Note: Before investing in a 529 plan, please consider the investment objectives, risks, charges, and expenses carefully. The official disclosure statements and applicable prospectuses – which contain this and other information about the investment options, underlying investments, and investment company – can be obtained by contacting your financial professional. You should read these materials carefully before investing. As with other investments, there are generally fees and expenses associated with participation in a 529 plan. There is also the risk that the investments may lose money or not perform well enough to cover college costs as anticipated. Investment earnings accumulate on a tax-deferred basis, and withdrawals are tax-free as long as they are used for qualified higher-education expenses. For withdrawals not used for qualified higher-education expenses, earnings may be subject to taxation as ordinary income and possibly a 10% federal income tax penalty. The tax implications of a 529 plan should be discussed with your legal and/or tax advisors because they can vary significantly from state to state. Also be aware that most states offer their own 529 plans, which may provide advantages and benefits exclusively for their residents and taxpayers. These other state benefits may include financial aid, scholarship funds, and protection from creditors.

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