Parents, as well as children, can use 529 college savings plan

The Dallas Morning News (MCT) - Don't think 529 college savings plans are just for young people. Their parents can also use them to save for their own college education.

"They are a very good tool for tax-free savings when an adult is thinking about returning to school," said Joseph Hurley, founder of savingforcollege.com, which educates families on how to save for college.

The struggling economy makes this a great time to consider returning to school and improving your skills.

An option that many adults may not be aware of is the ability to change the beneficiary on a 529 account to another family member "in the event the current beneficiary has no qualified use for the money," Hurley said.

"Parents should realize that making contributions to a child's 529 account provides a potential college funding source if they should ever lose their jobs and go back to school themselves."

The 529 college savings plans run by states work much like a 401(k) or an IRA by investing your contributions in mutual funds or similar investments.

The plan offers you several investment options from which to choose. Your account will go up or down in value based on the performance of the option you select. Earnings grow tax-deferred and withdrawals are tax-free when used for qualified post-secondary education costs.

The plans derive their name from Section 529 of the Internal Revenue Code, which created these types of savings plans in 1996.

The plans can be used for adult education at eligible institutions.

"An eligible institution is just about any accredited postsecondary school, including community colleges and many of the privately held online universities," Hurley said. "If an institution is part of the federal student aid system, then it is an eligible institution for purposes of Section 529."

And you don't have to be seeking a degree to save through a 529 plan; you can use a 529 plan to pay for vocational/technical schools.

The 529 plans cover such qualified higher education expenses as tuition, room and board, mandatory fees, along with books and computers (if required).

So if you think that college or vocational courses are in your future, you can set aside funds in a tax-deferred 529 plan, naming yourself as beneficiary, and tap the account tax-free to pay for those courses.

Most 529 savings plans have no state residency requirements, but you should check first.

"You can open accounts in as many of these states as you want, although in most cases there is little reason to have accounts in more than one or two states," Hurley said.

"There hasn't been any recent spike in people buying 529 accounts for themselves," said R.J. DeSilva, spokesman for Texas Comptroller Susan Combs. "It's possible that some adults may start thinking about longer-term planning and using 529s to pay for college for second careers, but it's too early to say if that will happen."

It's certainly another option to consider in this uncertain economy that's forcing all of us to think about what we want to be doing down the road.

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© 2009, The Dallas Morning News.