As students in high school start looking at colleges, the question looms for parents: How can I afford to cover the huge cost of tuition at my child’s future school? In many cases, the answer is putting away money in a 529 savings plan or some other savings account, starting early in a child’s life. By the time they reach high school, however, these options are less useful because they are designed to build up funds over a decade or more, not in the few years between starting high school and heading off to college. This is why I so often hear parents asking about scholarships, the other common tool for families trying to pay for their loved ones’ higher education. One of the top questions I get is, “When should a high schooler start applying for scholarships?” Keep reading to find out.
When Your High Schooler Should Start Looking at Scholarships
When it comes to finding and applying for scholarships and other forms of financial aid, earlier is always better, but most organizations have stipulations regarding when high schoolers are eligible to apply for their scholarships. Depending on the organization, you might have to wait until your senior year before submitting an application, but I’ve also heard of scholarships that open up to juniors or to those between their junior and senior years.
Even if you’re not old enough to start submitting scholarship applications, it’s never too early to start looking for the ones to which you’d like to apply at some point. If I were a freshman or sophomore in high school – though, let’s be honest, there are few freshmen interested in researching scholarships – I’d probably devote a little time every couple of weeks just to see what’s out there. Some scholarships are enough to put a serious dent into a high schooler’s eventual college expenses, so be sure to consider all your options well before graduation day rolls around.
Can a High Schooler Still Open and Use a 529 Plan?
As I mentioned above, 529 plans are financial tools that offer the most benefit if they’re opened when a beneficiary is far younger than any high schooler, but that doesn’t mean you can’t reap any reward at all from one of these accounts. At its heart, any 529 plan is just a tax-free investment account, and even a relatively small amount of earnings can still be helpful for tackling college’s insane price tag.
One important point to consider if you’re opening a 529 plan for a high schooler is what kind of investment you might want to make. Each state has its own 529 plan, and the vast majority are open to any U.S. resident, so you have plenty to choose from; plus, each state’s program comes with a unique variety of investment options.
However, any 529 plan that aims to see returns while a child is in high school will likely need to take on a significant level of risk. More aggressive investments are able to bring in substantially greater earnings, but there’s also a potential to lose some of the funds that you put into the account. If you’re willing to take that kind of gamble, it could pay off big and add quite a bit of money to your high schooler’s college fund, supplementing whatever scholarships they win.
Not everyone wants to roll the dice with their child’s tuition money, though; I’m not sure I would. Thankfully, it’s entirely possible to moderate risk and still earn some funds for college, even if the amount is not as high as it could be.
Can You Still Use a 529 Plan If Your High Schooler Gets a Scholarship?
With all their benefits, 529 plans come with a fairly major stipulation: Any funds in the account must be put toward a qualified education expense, like tuition and fees. It’s a fair trade, in my opinion, but if your child earns a scholarship to their school of choice – one that covers the total cost of tuition, no less – you could end up with funds earmarked for education and no need to spend them after all. So, what can you do with that money?
The first option is simply to withdraw it from the account for whatever purpose you please; you can do so at any time, but any nonqualified use of the funds will incur federal income tax and a 10% penalty on any earnings, as well as state income tax (most likely).
The second option is to keep the funds in your 529 plan set aside for your high schooler. Even if they got a scholarship, they might not be quite so lucky come grad school, and the funds in your 529 plan can absolutely be used for that purpose. Plus, they’ll keep accumulating (up to a point), so you’ll have even more in the account after four years of undergrad.
The third option is to use the account for someone other than the original recipient. If your high schooler has a sibling, for instance, it’s simple enough to switch the 529 plan’s beneficiary to that child instead; it could also go toward another family member, such as a niece or nephew, or even to yourself or your spouse.
Open a 529 Plan for Your High Schooler with the Sootchy App Today
In the age of smartphones, so many essential tasks are available at the touch of a button. With the Sootchy app, this now includes opening, managing, or contributing to a 529 plan for a high schooler, middle schooler, or someone of any other age. Download our free app today and get started with your 529 plan, or visit us online to learn more.