Alternatives for money in a 529 plan

Question: Sean on Ludlow: Over the years, I’ve saved money in a 529 plan for my son, but now he’s decided not to go to college (he’s going to technical school instead). What can I do with this money now?

A: Actually, we have good news for you! If the Ministry of Education considers your son’s technical school to be a “eligible” institutionhe can use this money in the 529 plan for his expenses (for example, tuition, fees, books, and supplies).

But for argument’s sake, let’s say your son’s school doesn’t qualify. You could transfer the beneficiary of the 529 plan to another child – even a grandchild – without penalty. Or, if you want to broaden your horizons during retirement and take courses in which you earn credits or a technical program certificate, you can even make yourself the beneficiary (as noted above, the Department of Education must recognize the institution as “eligible”). To change the beneficiary, contact your 529 plan administrator. Most plans allow a change of beneficiary once a year.

And don’t forget that you can still make withdrawals from a 529 plan that aren’t related to education (known as a “non-qualified distribution”) – but you’ll pay ordinary income taxes and a 10% penalty.

Here’s Allworth’s advice: don’t assume that money from a 529 plan can only be used for “traditional” four-year college expenses. Most two-year associate programs, vocational and technical schools are considered eligible institutions (just be sure to double-check). Money in a 529 plan can now also be used for K-12 tuition.

Q: Joe and Julie at Milford: We are in our late 40’s and want to retire soon. We know it’s a lot earlier than normal, but we’ve saved well over the years and want to enjoy life before we get old. No suggestions?

A:It’s fantastic that you’re in such a strong financial position that you could retire 15 to 20 years before most people plan to. We just want you to ask yourself a few questions before making a decision:

Are you debt free? We recommend, in most cases, that pre-retirees pay for the house before retirement. It’s a huge drain on your retirement budget. The same goes for any other debt, like car loans and credit card debt. Your savings should fund your retirement lifestyle, not go to a bank or credit card company.

“Well saved” is quite subjective. Have you established a retirement budget? Will your savings and investments be able to generate enough income to cover these expenses over the next 20, 30, or even 40 years?

Are your investments in accounts that penalize you for withdrawing money before 59 ½, such as 401(k)s and IRAs? Or are they in accounts with no early withdrawal penalty, such as taxable investment accounts?

Do you have a health care plan as Medicare only kicks in at age 65?

And finally, what are you going to do with all your time?I hope you both have a passion or curiosity that you plan to pursue.

The ability to retire early is truly a fantastic feat. But we want to make sure you’re ready for the financial and mental transition, especially in the long term. Allworth’s advice is to work with a fiduciary financial advisor to find out if you are as prepared as you think.

Each week, Amy Wagner and Steve Sprovach of Allworth Financial answer your questions. If you or a friend or family member has a money problem or problem, please feel free to send these questions to [email protected].

The answers are for informational purposes only and individuals should consider whether a general recommendation in these answers is appropriate for their particular situation based on investment objectives, financial situation and needs. To the extent a reader has any questions regarding the applicability of any specific matter discussed above to their individual situation, they are encouraged to consult with a professional advisor of their own choosing, including a tax advisor and/or attorney. . Retirement planning services offered by Allworth Financial, an SEC-registered investment adviser. Securities offered by AW Securities, a registered broker/dealer, Member FINRA/SIPC. Visit allworthfinancial.com or call 513-469-7500.

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