We would like to start a college fund for our daughter. But if she doesn’t attend college, we’d like to be able to use the money as a nest egg to start her life. What college-savings plan would give us the most flexibility?
Expert Answer:
A 529 account would probably also work in your situation.
Because you’re primarily interested in a college fund, a 529 would let you take advantage of a slew of tax breaks: Your contributions may be eligible for a state tax deduction, your savings would grow tax-deferred, and the earnings would escape tax altogether if the money is used for qualified educational expenses, such as tuition, fees, and room and board.
But if your daughter doesn’t go to college, you still have some control over the money. You could transfer the funds to another family member and preserve the tax benefits, or withdraw the money and pay income tax plus a 10% penalty on the earnings.
