Dear Dave,
What happens to the money in an ESA if the child gets a scholarship and no longer needs the money?
Jonathan
Dear Jonathan,
In an Educational Savings Account (ESA), and in a 529 Plan, you are allowed to pull out money tax free in the amount of the scholarship. But very rarely do you find someone going to college completely free and clear. Often tuition is covered, and even tuition and a dorm room in some cases, but zero-cost college is almost unheard of. There are always living expenses, books and other miscellaneous items, and you can use the money in an ESA for any education-related expenses.
The chances of your money getting trapped and you as parents winding up in a situation where you’ve actually saved too much and a child has leftover money just doesn’t happen. This is a bunch of drama found only in the nightmares of nerds. Real human beings don’t have this problem, Jonathan, because nobody ever saves enough!
—Dave
* Dave Ramsey is America’s trusted voice on money and business. He’s authored four New York Times best-selling books: Financial Peace, More Than Enough, The Total Money Makeover and EntreLeadership. His newest book, written with his daughter Rachel Cruze, is titled Smart Money Smart Kids. It will be released April 22nd. The Dave Ramsey Show is heard by more than 6 million listeners each week on more than 500 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.