What to Do With College Savings if the Student Decides Against College

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All is not lost. Money saved for college can wait until the student is ready or be cashed in -- for a price.

This post comes from Karin Price Mueller at partner site Credit.com.

Q. My son is turning 18, and I’ve saved more than $200,000 for him for college. He doesn’t want to go. Some of the money is in UTMAs, some in a 529 Plan and some in savings bonds. I don’t want him to live off the money and not get a job. Help!

A. Bet that threw you for a loop.

Each of the kinds of assets you saved for your son is treated a bit differently, so let’s take stock of what you have.

Custodial Accounts

The assets you saved in a custodial account — Uniform Transfer to Minor Act accounts, or UTMAs — will be his when he reaches the age of majority, said Bryan Smalley, a certified financial planner with RegentAtlantic Capital in Morristown.

In New Jersey, the age of majority is 21. That means that there are three more years before the assets officially become your son’s.

“A lot can happen in the next three years: Your son could start a career and be self-sufficient — therefore not needing the money to support his lifestyle — he could start his own company and use the UTMA funds to help grow the business, or he could end up deciding to go to college,” Smalley said. “Who knows, a few years of earning minimum wage and seeing all of his friends move on with their lives may be all the motivation he needs to hit the books once again.”

The 529 Plan

The 529 account is different. As long as you’re the owner of the account, you retain control of the funds and there is no time limit on when you need to use them, Smalley said.

If your son decides to go to college in a year or two, the funds will be there.

“If your son does not go to college, you can always use the funds for another of your children’s college education — if your son is not an only child — or hold onto the account and use it for a future grandchild’s college education,” Smalley said.

If neither option interests you, you can always withdraw the funds from the 529 account and use them elsewhere, Smalley said. But that move comes with a price. You’ll have to pay a 10 percent penalty plus taxes on the earnings in the account if you use the funds for anything other than qualified higher education expenses.

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