Easy – he takes his money and he buys a plane ticket.
ninakatirina doesn’t say anything about the money being in a 529 account, although that’s possible. Any penalties that might be assessed could be relatively minor, depending on earnings growth in the account.
You’re right. When I hear the phrase “college fund” I automatically think 529. But of course it could just be a money market account or a mutual fund.
It’s not a 529, it’s a custodial account that reverts to the kid’s name the moment he turns 18. A 529 would have been so much safer, but that’s 17 years of water under the bridge.
Why can’t he open a 529 now and deposit the funds into it?
If the funds are now in a custodial account, and assuming the beneficiary has not yet attained the age of majority, the custodian could certainly make a decision to put them in a 529 account, but this would have a number of ramifications: whatever the funds are currently invested in would have to be liquidated first, possibly resulting in some serious tax consequences; and any 529 account funded with these assets would have to be a custodial 529, which presents the exact same control by the beneficiary issues at the age of majority.
“A 529 would have been so much safer,”
In many ways yes. There are however two issues with a 529, particularly when trying to plan many years (or decades) into the future. One is that university or college really isn’t the best fit for everyone. Also, it is possible to have too much in your 529, for example if the student get a very good merit scholarship. It is not obvious what to do with the 529 money if some is left over after college is done.
Perhaps, but in most cases there should be plenty of viable options as to what to do with excess 529 money. One of the options is to do nothing, because there is no requirement to do anything at all.
Their are stipulations that you can remove money from a 529 without penalty if the student obtains scholarships or other reasons. You can even remove the money for any reason but you have to pay taxes on the earnings and may incur an additional penalty on the earnings. Important to note that that the tax is on the earnings not on the money you put in. Excess funds after college can be saved for future education or the beneficiary can be changed to another family member or they can be removed and you will be subject to tax on the earnings.
Our son’s 529 has some money left after he graduated. If he decides to go to grad school, we will let him use it, or if not, it is the start of the college fund for his kids.
If the student gets a scholarship and has documentation, the penalty can be avoided. Taxes will still need to be paid on the earnings, but that’s a wash. Would have paid taxes if the funds were invested in a different vehicle.
Other ways to deal with leftover money … reassign the beneficiary, use it for grad school.
Anyone know if there is a time limit between getting a scholarship and withdrawing corresponding $ from the 529 without penalty? My Older D is line for a scholarship but I’d love to leave it in a 529 in case her younger sibling needs it in a couple years - if we don’t need it could I withdraw $ in 2020 for a scholarship received in 2018?