College Funds?

[LivingAlmostLarge]

Would you take money from your child's college fund to pay off debt? Is there a line between your own contributions and the contributions from others as gifts?

I ask because a person questioned whether they should use their child's 529 to pay off debt. Most said they would not take the child's money. But a few people did say it was okay.

This really bothered me because I am likely the relative/friend who gave money for the child's college fund. It seems unacceptable to me that a parent would actually consider using my gift money for their own debt.

But since I don't have kids, maybe this is okay. What do you think?

[Like2Plan]

If the parents own the 529 and are making the contributions-they are the account owners, so they can liquidate the account if they so desire. The down side is that you pay a premium to do that--there is a penalty on the earnings (in addition to taxes owed on the earnings). If things are that tight, it would have been better not to set up the 529 plan in the first place and just put the contributions towards the debt.

On the other hand, if I made contributions into a college fund for a child and found the parents were using it for bills, I would be upset. There is something that could be done about that. A person could set up the 529 and be the account owner and name the child as the beneficiary. You maintain control of the funds.

[disneysteve]

Would you take money from your child's college fund to pay off debt? Is there a line between your own contributions and the contributions from others as gifts?

Certainly, the idea doesn't sit well with me, but I think it depends on the situation. If the family was seriously in trouble, on the verge of bankruptcy or losing their home and the college fund money was enough to avoid that and get them back on their feet, then I think all's fair. It wouldn't make sense to see them out on the street while thousands of dollars sat in a college fund.

As noted, of course, non-qualified withdrawals from a 529 would be penalized, but in an emergency, that might be the only choice.

Of course, if the debt arose from poor money management and overspending, I'd be less open to the idea than if it came from medical bills or some other issue beyond their control.

[MonkeyMama]

I would have no qualms about taking money *I* put into a college savings plan and using it to pay off debt or something.

My parents didn't pay for my college but were always very financially secure. I know way too many people who had expensive colleges completely paid for and have to take care of their parents at a very young age (because their young parents are broke). Likewise, I feel the best gift I can give to my child is financial security; not a free education. I'll take my parents any day!!! As I feel what they have given me is way more valuable.

When you talk about money other people gave my kid specifically for education? Then the only thing that money will go to is education. That's completely different.

Of course, because I don't feel my kids are entitled to a zillion dollars for college (or for anything really), we save little in their name anyway. It's mostly in our name for that very reason. Because I don't really see it as their money. Likewise, if I change my mind and want to spend it on something else, it's very different if I don't have to pull it out of their accounts. It's just how our family does things. My parents never saved any money in my name when I Was a child. I think I am better for it.

[LivingAlmostLarge]

Money given as gifts. Example an aunt (me), grandparent, godparent, friend, etc who gave a check to be deposited into the 529 or savings account for say $25 or $50 every birthday/Christmas.

This is not money saved into a college fund by parents. THIS is solely gift money from christening, etc. How much more specific than writing on check "college"

[scfr]

I agree that there's a very clear line between the money the parents contributed themselves (to do with as they wish) and money that was gifted by others with the specific instructions to be used for the college fund.

I have no children, but I am a "college fund gifter." I have nieces and nephews on both sides of my family. On DH's side, we know that any money given will be spent on toys and such, so when we give cash we don't specify the use and we give only as much as we are perfectly content to see spent on the latest doodad. On my side, my sister has requested that family give contributions to the college fund instead of toys, and we do that. On the checks, we write "for xxx and yyy's college fund." As you said, that couldn't be more clear. We are confident that she is putting the money away in her children's college fund. If we weren't, we would be giving much less or we would be buying some cheap little toy and putting money away for the kids ourselves.

I do believe a giver's instructions need to be followed, and if they aren't, you run the risk that the gifts will be cut off.

Having said that, if my sister were ever in a very tough spot financially (one of the kids in need of major medical care that they couldn't cover, for example), I would be open to her spending my college fund donations on something else. But if I am alive, I would definitely want her to run the idea by my first. [And depending on the situation, I would probably tell her to keep hands off the college fund and would send her some extra cash to help her out.]

[Thrif-t]

Since my DH and I are the only ones who have ever contributed to the kids college funds I'd have no qualms about raiding it if an emergency happened. Even though others have given money for birthdays and what not and I put it in there it was not made known that the gift giver wanted it to go towards college.

[Joan.of.the.Arch]

I don't think it is quite right. The money was accepted as college money, not just as a general gift to be used at any time for any purpose. I feel like there was a "contract" between the giver and the parent. Sounds like the parent is about to break the contract. If the parent wanted a back-up fund s/he should have asked you before accepting the dedicated money if it was also okay to use it in the future as an emergency bailout fund.

Did you find out about it in a way that could be construed as the parent just feeling you out on the matter, knowing that it is not quite right, but hoping that you would direct them to go ahead and use your contributions for debt instead?

Without knowing the whole story, I suspect I that if I were the giver, would feel very distrustful of the parent from now on. I would feel like the child was stolen from and myself used as well. You may have sacrificed some things to give the college funds. How grating (infuriating?) if it turns into you having sacrificed so that the parent could live a little higher on the hog, so to speak.

However....if the situation of the family is really desperate, I think maybe it only makes sense to use the money in the here and now. I mean, are they literally becoming homeless? It makes no sense to have a chestful of money to be used 15 years downline if you can't even keep the child alive to reach college age....Still, I gotta say, if parent is at fault, I'd still be pissed and probably couldn't help but demand that parent replace the money, even if I knew if would never happen.

[LivingAlmostLarge]

Nope not desperate, but just interested in paying off their debts (CC, car loans) faster.

Thrif-T if I gave you a check that said College, would you feel okay taking it from the college fund you set up for your child?

And I don't set up a 529 because it's a lot of trouble. It's easier to just give a check.

And I'm okay if a parent said I'm BK and going into foreclosure, but just for regular bills?

[Thrif-t]

Nope not desperate, but just interested in paying off their debts (CC, car loans) faster.

Thrif-T if I gave you a check that said College, would you feel okay taking it from the college fund you set up for your child?

And I don't set up a 529 because it's a lot of trouble. It's easier to just give a check.

And I'm okay if a parent said I'm BK and going into foreclosure, but just for regular bills?

No if you earmarked your gift for college then I wouldn't feel comfortable taking it out. Guess I misunderstood the OP I thought it was a hypothetical would I ever take from my kid's college fund in an emergency as such I would except of course the $$ you gave me LivingAlmostLarge I'd leave that in there