Where Does the ESA Money Go?

Christina wants to know what happens to an ESA if the child doesn't go to college or use all the money. Dave explains.

QUESTION: Christina on Twitter wants to know what happens to an ESA if the child doesn’t go to college or use all the money. Dave explains.

ANSWER: It can be transferred to a sibling without any penalties. If they do not use it at all ever and you cash it out, it will be taxed heavily—the full tax rate plus a 15% penalty. The government’s going to take about half the money.

Basically, when we started our kids’ savings accounts when they were little, we told them, “This is your savings account. This is what a savings account looks like. This is your college account. This is savings for college. You’re going to college.” It was kind of just assumed and brainwashed into their little brains that it was not an optional thing. You’re going to college. We’ve got the money saved. You’re going to college. That’s what you’re doing. You’ve got to do your work when you’re in the eighth grade so you can get into the classes in the ninth grade and be ready for college. You’ve got to be able to take the ACT and the SAT. You’ve got to be ready for college. It just became a part of our family’s rhythm—our family’s conversation—so then we didn’t worry about the fact that it was going to get taken by the government if they didn’t use it for this.

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