How to Use Your Parents’ 529 College Savings Plan to Fund Trade Certifications or Start Your Own Business
A 529 college savings plan is more than just a fund for university, it’s a flexible resource to launch a career in the skilled trades or kickstart your own business. Whether you’re aiming to become an HVAC technician, electrician, or plumber, or dreaming of running your own trade business, your parents’ 529 college savings plan can help make it happen. This post guides you through using a 529 college savings plan to fund trade certifications, explores entrepreneurial options, including taking the tax hit for flexibility, and shares practical steps to get started, keeping your goals in focus.
What Is a 529 College Savings Plan, and How Can It Help?
A 529 college savings plan is a tax-advantaged account designed to cover education expenses, initially for college but now expanded to include broader paths. The SECURE Act of 2019 allows 529 college savings plan funds to pay for trade schools, vocational programs, and registered apprenticeships, ideal for aspiring tradespeople. The SECURE 2.0 Act of 2022 permits rollovers of unused funds to a Roth IRA, supporting business ventures. Tax-free withdrawals for qualified education expenses and potential state tax deductions on contributions make these plans a valuable tool.
For trade certifications, 529 college savings plan funds can cover tuition, fees, tools, and equipment—like welding kits or HVAC software—at eligible institutions. For business goals, you can use rollovers, reassign beneficiaries, or withdraw funds and accept the tax penalty and fund getting your own truck! Here’s how to put it into action.
Option 1: Fund Trade Certifications with Your 529 College Savings Plan
Trade certifications provide a fast, affordable route to a high-paying career, often costing less than a four-year degree and taking under two years. Programs at trade schools offer hands-on or interactive training and credentials like EPA 608 or OSHA 10-Hour. Here’s how to use your parents’ 529 college savings plan to cover these costs:
- Confirm Program Eligibility: Ensure the trade school is an eligible institution under IRS rules. Most accredited vocational programs in HVAC, plumbing, or automotive repair qualify. Verify with your 529 college savings plan administrator.
- Cover Qualified Expenses: Use 529 college savings plan funds for tuition, fees, and required equipment, such as tools or software, for programs leading to recognized credentials. For example, training for HVAC or electrical certifications is fully fundable.
- Request a Withdrawal: Work with your parents (the account owners) to withdraw funds tax-free for qualified expenses. Provide documentation, like invoices from your trade school, to stay compliant. If enrolled at least half-time, room and board may also qualify.
- Tap Apprenticeships: The SECURE Act allows 529 college savings plan funds to cover registered apprenticeship programs, including tools and fees. Many trade schools connect students to apprenticeships for hands-on experience.
Option 2: Use 529 College Savings Plan Funds to Launch Your Trade Business
Dreaming of starting a plumbing business or electrical contracting firm? While 529 college savings plans can’t directly fund business expenses, there are creative ways to leverage these funds for your entrepreneurial vision. Here’s how:
- Get Certified First: Use 529 college savings plan funds to gain skills and credibility through certifications. Programs in HVAC, electrical work, or automotive repair like EPA 609 and EPA 608 from Tradez are flexibile options.
- Rollover to a Roth IRA: If your 529 college savings plan account is at least 15 years old, the SECURE 2.0 Act allows you to roll over up to $35,000 to a Roth IRA for the beneficiary (you). After five years, these funds can be withdrawn penalty-free for business costs, like tools or marketing. Annual rollovers are capped at $7,000 (for 2025), and contributions from the last five years are excluded.
- Reassign the Beneficiary: If you’ve used funds for training and have leftovers, your parents can change the beneficiary to a sibling or family member, preserving the funds for their education or business goals.
- Withdraw and Take the Tax Hit: For immediate business needs, you can withdraw 529 college savings plan funds for non-qualified expenses, like startup costs. You’ll pay income taxes on the earnings portion and a 10% penalty, but this can be worthwhile in some cases. For example, withdrawing $10,000 with $6,000 in earnings might cost $1,800 in taxes and a $600 penalty (at a 30% tax rate), leaving you with $7,600 for your business.
Option 3: Maximize Your 529 College Savings Plan’s Flexibility
To make the most of your 529 college savings plan, think strategically about your career and financial goals. Here’s how to stretch every dollar:
- Collaborate with Your Parents: Since they likely control the 529 college savings plan account, discuss using the funds for certifications or business plans to ensure smooth withdrawals and tax compliance.
- Leverage State Benefits: Some states, like South Carolina with its Future Scholar plan, offer tax deductions for contributions. Check your state’s rules for added savings.
- Plan for Leftovers: If funds remain, roll them to a Roth IRA and leverage the magic of compound interest, transfer to a family member, or withdraw and take the tax hit for business needs, ensuring no money goes unused.
- Find Your Path: Not sure which trade is right for you? Try a trade quiz to find your fit and start planning.
Take the First Step Today
Your parents’ 529 college savings plan is a springboard to a thriving trade career or your own business. Whether you’re enrolling in a trade program like Tradez Institute, rolling funds to a Roth IRA, or taking the tax hit to fund your startup, the possibilities are endless. Contact a financial advisor to learn how to use your 529 college savings plan, and take the first step toward a debt-free, high-paying future in the skilled trades.
Disclaimer: This article is for informational purposes only and is not intended as financial or tax advice. Please consult with a qualified professional before making decisions about your 529 plan or other financial accounts.