What if My Child Doesn’t Go to College? Smart Ways to Use (and Not Waste) a 529 Plan
Worried about funding a 529 because your child may not choose college? Good news: today’s 529s are far more flexible than many people realize. Here’s what you can do with the money and why it still often makes sense to use a 529 compared with the alternatives.
Key Takeaways
A family at an education crossroad
-529s now cover much more than “traditional college.” They can fund K–12 tuition (limited), registered apprenticeships, and even a portion of student loan repayment.
-There’s a built‑in “escape hatch.” Under current federal rules, unused 529 money can be rolled to the beneficiary’s Roth IRA—within limits—without income tax or the 10% penalty.
-If you still need to cash out for non‑education reasons, only the earnings portion is taxed and subject to the 10% additional tax; your contributions always come back tax‑free. Certain exceptions (scholarship, disability, death, military academy attendance) waive the penalty.
-You keep control. The 529 account owner—not the child—controls the money and can change beneficiaries to another family member (even a first cousin) without tax. (IRS)
First, Know the Baseline Rules
If withdrawals aren’t used for qualified education expenses, only the earnings portion is included in income and hit with a 10% additional tax. Congress built in several penalty exceptions—scholarships, disability, death, and attendance at a U.S. military academy. (Income tax can still apply to the earnings.)
Quick example: If you withdraw $20,000 and $5,000 of that is earnings, the penalty would be 10% of $5,000 = $500, plus income tax on $5,000. Your $15,000 of contributions are never taxed again.
“No College” Doesn’t Mean “No 529”
Here are practical ways families use 529 dollars even if the child chooses a different path.
1) Apprenticeships & Skilled Trades
Tuition, books, fees, and required equipment for apprenticeship programs registered with the U.S. Department of Labor are qualified 529 expenses. That covers many trades and earn‑while‑you‑learn programs.
2) K–12 Tuition (for this child or siblings)
Up to $10,000 per year, per beneficiary can be used for K–12 tuition at public, private, or religious schools. (States treat this differently—some impose taxes or claw back prior state deductions—so check your state’s rules.) As of July 4, 2025, additional expenses like books, curriculum materials, online educational materials, and tutoring are now considered qualified expenses for K-12 education, subject to the $10,000 annual limit.
3) Student Loan Repayment
You can use up to $10,000 (lifetime) to repay principal or interest on qualified education loans of the beneficiary or a sibling. (Interest paid with these 529 dollars can’t also be claimed as a student loan interest deduction.)
4) Change the Beneficiary—Broadly Defined “Family”
Not using the account for this child? Retitle it to another family member—a sibling, parent, grandparent, niece/nephew, or even a first cousin—without triggering tax. You can also name yourself if you ever plan to take classes.
5) Roll Over to the Beneficiary’s Roth IRA
Starting in 2024, Congress added a safety valve: you can roll unused 529 funds directly to a Roth IRA for the same beneficiary if:
The 529 has been open > 15 years;
You don’t roll amounts (and earnings on them) contributed in the last 5 years;
The rollover is trustee‑to‑trustee, counts toward the annual Roth IRA contribution limit, and is capped at $35,000 per beneficiary (lifetime).
The beneficiary must have compensation (earned income) for the year like any Roth contribution.
6) Transfer to an ABLE Account (for disability‑related needs)
If the beneficiary (or a qualifying family member) has an ABLE account, you can roll 529 money to ABLE up to the ABLE annual contribution limit, providing more flexibility for disability‑related expenses.
7) Wait—You Don’t Have to Decide Now
There’s no federal “use‑by” date for 529 college savings accounts, so you can keep funds invested in case plans change or a future grandchild could use them. (Some prepaid or “tuition track” programs impose timelines—check your plan.)
When Cashing Out Might Still Be Reasonable
If you ultimately need the money for non‑education purposes, remember:
Tax & additional 10% tax apply only to earnings, not your contributions.
The penalty is waived in several situations (scholarship, disability, death, certain military academy attendance, or when an American Opportunity or Lifetime Learning Credit is the reason income is recognized).
Why a 529 Often Beats the Alternatives
When you compare funding options for a child’s future, 529s frequently come out ahead because they combine:
Tax‑free growth and withdrawals for qualified education uses.
Owner control. Unlike UGMA/UTMA custodial accounts (which flip to the child at age of majority), the 529 account owner keeps control and can change beneficiaries. (IRS)
Range of qualified uses beyond four‑year degrees: trades, apprenticeships, K–12 tuition (limited), partial student‑loan payoff, and the Roth IRA rollover backstop.
Potential state tax breaks on contributions (varies widely by state—check your state’s specific rules before choosing an out‑of‑state plan).
By contrast, taxable brokerage or savings accounts offer more open‑ended flexibility but lack the 529’s federal tax advantages; over 10–18 years, those tax savings can be meaningful. (And you can always pair a 529 with a smaller “anything‑fund” in a brokerage account for maximum flexibility.)
A Practical Order‑of‑Operations if College Isn’t the Plan
Pause before withdrawing. There’s no federal deadline for most 529 savings plans. (Saving for College)
Check for qualified alternatives: apprenticeship costs, K–12 tuition for siblings, or up to $10,000 toward student loans.
Consider a beneficiary change within the family (including future grandkids).
Evaluate a Roth IRA rollover for the beneficiary if the 15‑year/5‑year rules and annual limits fit.
Explore an ABLE rollover if disability planning is relevant.
As a last resort, take a non‑qualified withdrawal—knowing only the earnings are taxed/penalized and exceptions may reduce the penalty.
Bottom Line
A 529 is not a “use‑it‑for‑college‑or‑lose‑it” account. With expanded qualified uses, the ability to change beneficiaries, ABLE and Roth rollover options, and owner control, 529s give families a tax‑smart, flexible way to prepare for a child’s future—even if that future doesn’t look like a traditional college path.
If you’d like help tailoring a 529 strategy to your family’s goals, Fortress Financial can walk you through the options and how they fit within your broader plan.
Disclosures
Fortress Financial Group LLC (“FFG") is a registered investment advisor. Advisory services are only offered to clients or prospective clients where FFG and its representatives are properly licensed or exempt from licensure.
This is for informational purposes only and does not constitute investment, legal, tax, or accounting advice.
Sources:
https://www.savingforcollege.com/article/timing-of-529-plan-distributions-must-match-qualified-expenses
https://www.irs.gov/newsroom/529-plans-questions-and-answers
