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Grace is in Los Angeles. Hi Grace. Welcome to the Ramsey show. Hi, thank you so much for having me Dave. Sure, what's up?

So my husband and I were in baby step seven, but we actually skipped baby step five because we cannot agree on how to execute baby step five.

We have three small children and he does not want to put money away for their college because he is concerned that what if they don't do a four year college, maybe we want the money more liquid, so they can use it for a trade school or something else of that nature.

I can use a five to I can use a five twenty nine for trade school.

You can use it for trade school, but what if well I guess he's concerned that it gets locked in there and then what if they just get out, you can take it out. There's just a penalty on you don't get to keep all the growth tax free.

You get to pay a tax on the growth. You pay a tax on the growth.

But the principle you would be able to keep. Sure, and you keep all the growth minus the penalty for the tax for taking it out not using it for education.

Okay, it's transferable to transferable to siblings.

Okay, so what I guess what would you suggest we do in this situation? I mean, do we find I would suggest he gets some more some better knowledge than he has, which will lead him to a different decision.

That would be helpful.

Well, I mean, he's making he's making his he it sounds like he thinks it stuck in there in Christina 529 you can get to. Yeah, there's a lot of options with 529.

So you can even use it for K through 12 expenses. So if you notice that maybe your oldest isn't going to college, you can switch beneficiaries and use it for K through 12.

Use it on another one of your kids' educations. There is a lot of flexibility in it. So I know it's kind of scary because it seems so concerning about if your kids don't go to school, but there's a lot you can do with it.

But worst case scenario worst case scenario, you just simply cash it out and let's say that you had put in 50,000 and it grew to a hundred thousand. I'll just make up a number. That wouldn't be right.

But let's just say, let's just say you know, you made $50,000. Okay, you're going to pay taxes on the $50,000 growth.

Or let's say you put 60,000 in and it grew to a hundred. That's probably more realistic. Okay, so you're going to pay taxes on the growth if you cash it in and don't use it for education, which you would have done if it was just in a mutual fund, by the way.

Okay, you have to pay taxes on it. If you put it in a mutual fund, you have to pay taxes on it. So you know, the only thing the $529 does is give you tax free growth for education. So it's a Roth IRA for education in a sense mathematically.

So you can cash it out. You get to keep all of the money you put in all of the growth, but you have to pay taxes on it and a penalty on it like cashing out an IRA early. What is the penalty?

I think it's 15, 10 or 15, it used to be, it used to be 10 and then it went up and I think it's come back down. So I can't remember. It's not, it's, you're going to get to keep some of the growth and all of the principle.

Which is all you would have got. I mean, what you're going to lose here is the penalty versus if you had it in mutual funds. So it's worth it. It's worth a try.

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