By Anita Kelley, Savings Division Director, State of Alabama Treasurer’s Office

Soon after my second child was born, I realized that I needed to start saving for both of my children’s higher education expenses. I had just graduated college myself five years prior to his birth. I was fortunate that my parents funded my education and didn’t leave me with any student loan debt to pay. Knowing how important that was for me, I knew that I wanted to do the same for both of my children. I was working at a bank and talked to one of our investment specialists who educated me on 529 accounts. I immediately opened accounts for both my daughter and son. We were a young family with very little disposable income, but I set up automatic contributions that went straight into their 529 accounts. It wasn’t much each payday, but it was a start, and I increased the contribution amount over time.

18 years went by so fast, and before I knew it, my daughter was ready for college. I knew I had not saved all that it would cost for her to attend, but I had a good amount that definitely reduced the amount I had to worry about. My son was two years behind her and had decided he did not want to attend college, but instead wanted to become a firefighter. That left me with the question of what to do with the money I had saved for him in his 529 account.

There are several options if the beneficiary of a 529 account decides to not go to college.

1. You can leave the funds in the account in case the beneficiary or another family member can use the funds at a later date to attend school.

2. You can change the beneficiary to another member of the family for their higher education expenses.

3. You can withdraw the funds as a nonqualified withdrawal. The earnings portion (not the amount you contributed) is subject to federal and state income taxes and a 10% federal penalty tax.

I opted to change the beneficiary to my daughter who was currently a junior in college. The funds I had saved for him were now helping her and further reduced my out-of-pocket expenses!

It’s also important to note that in recent years, 529 accounts have become so much more flexible regarding their usage. The types of institutions that are now eligible for funds from a 529 account include not only four-year colleges and universities, but community colleges, trade, technical and vocational schools, as well as registered apprenticeship programs. So, if your child decides not to attend a traditional four-year school, the path they do go down may still be one that their 529 account can be used for.

After my daughter finished school, I kept her account open. I am now making automatic deposits into the account again, but this time the funds will be used for my soon-to-be granddaughter who made her entrance into the world in September! After her birth, I will change the beneficiary on the account from her mother to her and the cycle will begin again. Saving for a little one’s future, no matter what that future might hold.

About the author:

Anita Kelley is the Savings Division Director for State of Alabama Treasurer’s Office. Anita has been with the State of Alabama Treasurer’s Office for ten years as Director of the Savings Division, which oversees the Alabama ABLE Savings Plan, CollegeCounts: Alabama’s 529 Plan, and PACT (Prepaid Affordable College Tuition). She has previously served as Treasurer of The College Savings Plan Network and Co-Chair of the CSPN Communications Committee. Prior to working for the Treasurer’s Office, Anita was a Banking Center Manager and Vice President at BBVA Compass for 18 years where among other things, she sold 529 accounts to clients. She graduated from Huntingdon College in Montgomery, Ala.