You had a 529 plan, but your child gets a scholarship.

You’ve invested in a 529 plan and are set for college, but your child gets a scholarship. Is that money wasted?


First things first. What is a 529 plan?

A 529 plan is a saving plan for future college that’s run by the state or individual colleges. They are legally called “qualified tuition plans,” and they can come with remarkable tax benefits, including the money not being taxed when withdrawn for college expenses. A 529 plan comes in two flavors: prepaid tuition plans and college savings plans. All 50 states and Washington DC offer some sort of prepaid tuition.

More specifically, a 529 plan allows your child’s saving to grow in a tax-deferred status, as long as the money is used on qualified education expenses or at an eligible institution.

Whether or not a 529 plan is right for you depends largely on your individual situation and the plans available in your state. Find out more information by contacting your financial advisor or through the SEC.


What happens if my kid gets a scholarship?

Congratulations! Scholarships are so many parent’s dream come true. If you’re currently considering getting a 529 plan but are worried about wasting your money in the case of a scholarship, rest assured, saved money is never wasted money. Never forego any college savings for the chance of getting a scholarship, no matter how bright or hard working your child is, guaranteed money trumps maybe money.

If you’ve already invested in a 529 plan and your child has received a scholarship, don’t worry, you can still put that saved money to good use, many times without losing the tax benefits of the account.


Can I put it towards Med School?

As we mentioned earlier, money from a 529 plan must be used at an eligible educational institution, or you suffer taxes or fees. What most folks don’t realize is that “eligible tuition” is a broad category. Yes, the money can go towards a traditional 4-year undergrad degree, but it can buy so much more than that.

Your 529 plan can be applied to online school, international schools, community college and trade school. Trade schools include culinary schools, portfolio schools, and clown college. Your 529 plan applies to all levels of upper level education, this means it includes grad school, too.

If your kid gets a scholarship, you’re more than welcome to keep your 529 plan to pay for med school, dentistry school, law school or general grad school.


What else can I do with it?

By no means do you must invest your 529 plan in grad school if faced with a full scholarship. You will have a few other options. Firstly, most scholarships are not full rides. You can use your 529 plan to pay the difference and buy items not covered by your scholarship such as books, housing, meal plans, etc.

You can transfer the account to another beneficiary, like a sibling or cousin. You can even use the account yourself if you want further schooling. Again, this includes online school and trade school. Transferring the account does not affect its tax status.

Don’t forget about withdrawal. Normally, you’d have to pay a 10% penalty in the case an unqualified withdrawal, however, there is an exemption made for scholarships.


We hope you see that the money invested in a 529 plan is not wasted when confronted with a scholarship. It merely takes another form, helps in a different sector of yours or your child’s life. Don’t let the possibility of a scholarship sour you on a 529 plan, and don’t feel disheartened if it seems like you’ve invested your money for nothing. Protection Point Advisors can help with any questions you may have about setting up a 529 Plan or your current 529 Plan. Contact us today!



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