529 Plans Aren't Just for Kids

529 college savings plans aren't just for kids or grandkids, pre-retirees and baby boomers can take advantage of 529 plans too. Today, retirement can mean taking on a whole new career or a commitment to a hobby which, in turn, means heading back to school to prepare. Why not advantageously finance your own upcoming academic endeavors? Use the same tax-free dollars in a 529 college savings plan that you would use for college-bound children.

Here are examples of the educational opportunities that are available.

• A semester at sea studying marine biology

• A year-long French literature course in Paris

• A fall session exploring art in Rome

• Improving your golf game in Arizona

• A summer of music appreciation in Vienna

• A summer session of culinary studies on Prince Edward Island, Canada

"Older adults are looking for personal fulfillment and the chance to 'give something back.' They look beyond their jobs while still in reasonably good health, with mortgages paid off and empty nests in view. As they seek to build bridges to new life opportunities, many turn to higher education. For some older Americans, it is nostalgia for their college years that attracts them. For others, it is the chance to overcome a perceived deficit in their education. People who concentrated on one field, say, engineering or pre-med, may want to make up for what they missed." ~ Daniel Yankelovish, Ferment and Change: Higher Education in 2015 .

There is the natural encouragement for parents and grandparents to put money into 529 plans for any baby, toddler, or school-age child they happen to have in their lives. But many have not thought about a plan for themselves so they can go back to school. What better way to build savings for a midlife career transition than to stash the funds into a non-taxable account that comes out tax free if it is used for qualified education expenses?

Given what retirement means to different folks, there’s a good chance that many will continue to work in their retirement years, be it balancing out a fulfilling life of working, playing, or learning.

There are hundreds of programs available as described in detail at Peterson’s, a website for education planning. Additional study-abroad programs make going to school seem like a whole lot of fun.

For baby boomers who want to seriously prepare for another career by obtaining a degree or certification, they will find a movement afoot in the world of higher education to accommodate so-called nontraditional students, who now outnumber 18-22 year olds on many college campuses. Community colleges are leading the charge. Already, more than one million baby boomers are attending 1,200 community colleges to prepare for their next careers.

Despite the reasonable cost of community colleges, many of the educational opportunities boomers will be pursuing won’t come cheap. Master’s or doctorate degrees from established universities or alternative institutions don’t come cheap. And while financial aid is available, taking on a pile of student of loan debt later in life doesn’t seem financially sound.

Rather, boomers may want to stash away some of their salary into a 529 plan while they are in their peak earning years. Consider it an investment in the fourth source of retirement income --income from work, if work later in life is a necessity or personal fulfillment. The other three primary sources are Social Security, retirement accounts, and personal savings. Education that could save an individual from a menial retirement job and provide a comfortable income to supplement other income sources must be considered a wise investment just as much as the tuition in one’s children and grandchildren are paying to launch primary careers.

To help plan for going back to school, it’s best to calculate the amount one would need to put into a 529 plan to reach one’s goal. Let’s say that you will need $44,200 in five years. If you assume an 8% return, you would need to invest an initial lump sum of $30,082 (or $601.55 per month) to reach the goal. The conventional wisdom of investing very conservatively during the few years preceding college may not apply here, because a midlife person presumably has more flexibility to defer the goal or even choose a different path. The main point is that the investment earnings -- $14,118 in this case – are entirely tax free if you use the money for education.

What if you decide not to go to school or end up accumulating more money in the 529 plan than you can use for education?

In this case you have 3 options.

• Give the money to a family member – a grandchild, for example, by changing the beneficiary on the plan

• Let it remain in the account and eventually becoming part of one’s estate

• Spend it on something other than education and pay taxes plus a 10% penalty (which is not such a terrible option if you really need the money)

Naturally, 529 savings pay off more when they have time to grow. Twenty years of tax-free build-up is obviously worth more than five. If you are inclined to take advantage of midlife or retirement education, you should open and fund an account now even if you aren’t quite sure what course of education you might want to pursue.

Study-abroad programs may be particularly appealing to boomers who would like to take an extended vacation virtually anywhere in the world. You may even be able to pay for some or all of your living costs out of your 529 plan as long as you are at least a half-time student and limit the amount of the allowance for room and board (as determined by the institution).

Let us help you choose the 529 plan that’s best for you and select investments that coordinate with your retirement and personal investment portfolios.

This is article is part of an educational series to assist investors in making better decisions, either on their own or through the investment counseling services of Green Valley Wealth Advisors. Our aim is to have informed investors create a community for sustainable wealth and success. For more information on 529 plans, click here.

Comment on this article—name and email are required (*)