Your Guide to Money Etiquette
Q: If my child doesn’t go to college, must I give her the money I saved for it?
A: There are a few things to think about if you’re in this situation. First, if you make it clear to your child that the savings were intended for academic use only, then you can ethically keep the money—although ideally you would have previously disclosed the purpose of the funds to her, says Robert Steele, the director of the Janet Prindle Institute for Ethics at DePauw University, in Greencastle, Indiana. But bear in mind that if your plan for the money was to give your child a good start in life, it could still help her achieve that. For example, she could use it to buy equipment for a vocation she wants to pursue. Just be sure to look into the financial ramifications of turning over the money, says Wayne Van Heuvelen, the president of Horizon Consulting and Investment Services, in Des Moines. If the money is in a 529 plan, a tax-advantaged savings account, you could get dinged for taking it out for purposes other than paying for college, junior college, or trade school. “Unqualified withdrawals in Iowa, for example, carry a tax on the contribution amount and interest earnings, plus a 10 percent penalty at the federal level,” says Van Heuvelen. (Rules vary, so check your fund’s website.) And remember: Although your daughter may not want to attend college now, she might feel differently in a few years. “Hang on to the cash for a bit, and continue having discussions about school,” says Diane Swanson, the chair of the Business Ethics Initiative at Kansas State University, in Manhattan, Kansas. What if she never uses the money? Usually you can transfer the funds tax-free to other family members who are pursuing higher education.