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Dilmatz wrote,

I've been thinking/reading about 529s for some time and I have not yet pulled the trigger. I'm concerned about the flexibility of the account. Let's say I put a bunch of money in there and my child doesn't use it all. Can I get that money back *without a penalty*? I don't think so. What if she doesn't go to college at all? Again, can I get my money back without a penalty?

I'm being theoretical at this point, but it's enough to give me significant pause. Anyone else have these concerns? Can anyone enlighten me if my thinking is incorrect? And if my thinking is NOT incorrect, why would it still be worth it to me?

When I first began looking at the 529 plans, I had similar concerns that you are expressing here. With that said, I am now investing in a 529 for both of my boys and here are the answers to your questions.

If you invest in a 529 plan and your child chooses not to attend college, you have a few options. One option is that you can change the beneficiary to another family member. If there are no other family members that would need the funds for education, another option is to withdraw the money from the plan.

If you withdraw the money, the contributions that you made are not penalized or taxed. For example, over the years you contribute $50,000 to the 529 plan. If you decide to withdraw the funds, you can take the full $50,000 without penalty or tax consequences. Note, there is the possibility of tax consequences if your state allows deductions from state taxes.

However, any earnings within the account will be assessed a 10% penalty and will be subject to income taxes at your current tax rate. There are some instances where the 10% penalty is not applied and those include the death of the beneficiary, the beneficiary becomes disabled or the beneficiary receives a scholarship.

With that summary, here is a fantastic site with the answers to most of these questions:

I hope that helps answer some of your questions! Let me know if you have more and I will do my best to help. I am still learning myself.

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