qualified withdrawal penalty if it’s lower than the amount of aid reduced. What if your family member doesn’t go to college? No problem... You can use a 529 plan for a lot more than just a regular four-year college... Your beneficiary could attend a trade or vocational school or participate in a career- training program. And you can also name yourself as the beneficiary and take cooking classes at Le Cordon Bleu or any other interesting school... For example, Joseph Hurley, founder of the Savingforcollege website, named himself as the beneficiary of his 529 plan at 57 years old to study horticulture at his local community college. As long as a school offers postsecondary education and its students can apply for federal financial aid, you can use 529 funds for tuition, fees, and qualified expenses. To find out if a specific school or program is eligible, check the FAFSA school search here... It includes 400-plus schools that are outside the U.S. if you wanted to take an educational retirement trip. It can even be a backdoor estate plan... Because you can switch beneficiaries at any time, you can start the plan by naming yourself or your child as the beneficiary... then switch generations to your grandchild. But make sure that you don’t move more than $15,000 per year between beneficiaries – that can trigger gift and estate taxes. And 529 plans can be a great place to put
“extra” required minimum distributions that the IRS requires you to take out from your Individual Retirement Account (“IRA”) or 401(k). If you don’t need the money for your retirement, 529 plans can let you pass it to the next generation. What about the worst-case scenario? If there is no one in your family that can use the 529 funds... and you have no interest in continued postsecondary education yourself... you can still get access to that money. It always belongs to you. However, you’ll have to pay federal and state taxes on earnings – plus a 10% federal penalty. Keep in mind that it is more beneficial to you to max out your 401(k) and IRA before contributing to a 529 plan. Remember... your kids and grandkids can take out a loan for college – but you won’t find any banks willing to give you a loan for retirement. Dr. David Eifrig worked in arbitrage and trading groups with major Wall Street investment banks, including Goldman Sachs, Chase Manhattan, and Yamaichi in Japan. In 1995, Dr. Eifrig retired from Wall Street, went to UNC-Chapel Hill medical school, and became an ophthalmologist. Today, he publishes a free daily letter on health and wealth that shows readers how to live a millionaire lifestyle. If you’re interested in more ideas like this essay, you can sign up by clicking here.
American Consequences 21
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