What can 529 funds be used for if my child doesn't go to college?

Wondering about 529 plan rules and what happens to unused 529 plan funds? They can be used in other ways. We break down the options.

Two young men welding with green safety goggles and red protective gloves.

If you've been saving for your child's education using a 529 plan and they've decided not to attend college, you may be wondering what options are still available to use the money.

529 plan rules

529 plans were established to provide a tax-advantaged way to save for education. Money saved in a 529 plan generally grows tax-deferred at the federal level. Withdrawals used to pay for qualified education expenses such as college tuition, room and board, fees, books, supplies and equipment required for courses are generally tax-free.

A 529 plan isn't just for post-secondary education anymore. New rules put in place allow 529 plan funds to be used for tuition at elementary and secondary schools — up to $10,000 per student per year. Be sure to check your state's 529 plan rules, however, as they vary by region.

Can a 529 be used for a trade or vocational school?

These qualified expenses aren't just for a traditional four-year college. These funds can go toward several different educational pursuits, including two-year associate degree programs, trade schools or vocational schools, such as cosmetology or culinary arts schools.

Can you transfer 529 plans to another child?

Short answer: absolutely. If the original beneficiary ends up not using the 529 plan funds, you can switch beneficiaries to another family member or relative as defined by the IRS. You can even make yourself the beneficiary if you want to go back to school for an advanced degree or even classes at a local college.

What happens to unused 529 funds?

Your 529 account will never expire, even if your child ends up not using it. You can leave the funds in the account, allowing investments to grow tax-deferred, and use the funds down the road for a grandchild or another qualified family member.

Is a 529 worth it if not used for education?

It's best if the funds in a 529 plan are used for education because of the benefits this type of account provides. However, if you end up withdrawing unused 529 funds and don't use them for qualified education expenses, you will likely owe federal and state taxes plus a 10% penalty on the earnings portion of the withdrawal.

The information in this article was obtained from various sources not associated with State Farm® (including State Farm Mutual Automobile Insurance Company and its subsidiaries and affiliates). While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. State Farm is not responsible for, and does not endorse or approve, either implicitly or explicitly, the content of any third party sites that might be hyperlinked from this page. The information is not intended to replace manuals, instructions or information provided by a manufacturer or the advice of a qualified professional, or to affect coverage under any applicable insurance policy. These suggestions are not a complete list of every loss control measure. State Farm makes no guarantees of results from use of this information.

Neither State Farm nor its agents provide tax or legal advice.

Start a Quote
Select a product to start a quote.
Agents Near You
Contact Us

Also Important

How a 529 Plan Works

A 529 education savings plan is a tax-favored program operated by a state designed to help families save for future education costs. Check out "529"benefits.

Ways to Pay for College

Learn the average cost of college and ways you can start to save now such as 529, Coverdell and Uniform Gift to Minors. Let us help you by offering savings and debt reduction ideas.

Related Articles

FAFSA® Facts Families Need to Know - State Farm®

FAFSA® stands for Free Application for Federal Student Aid. We'll explain the important things about FAFSA that can help pay for college.

How COVID-19 Impacts Student Loan Repayments

The CARES Act provides temporary student loan forbearance on all federal student loans. We break it down, along with other changes to student loan funding.

College Savings Calculator

Use this calculator to determine how much should be saved for future college costs.