Attention, retirement savers: College 529 plans aren't just for kids

As a financial planner, Ray Loewe watched clients who had retired struggle with too much leisure time.

"Playing golf six days a week gets boring," Loewe said.

He vowed that when he retired, he and his wife would travel and take college classes.

To put his plan into action, Loewe took advantage of a savings tool typically used by parents and grandparents to stash money away for college for children — the 529 college savings plan. He opened one for himself.

When he retired from his planning business in his 60s, Loewe and his wife, Sandy, studied ecology and leather back turtles through a New Jersey community college course taught completely on the ground in Costa Rica. They tapped $25,000 in 529 savings to pay the bill.

Loewe, whose financial planning business in New Jersey focused on paying for college, was ahead of his time. A decade later, more financial planners are directing retirement-focused clients into 529 plans, experts say.

The number is still small, however. Only 2 percent of 529 plans list people over 21 as beneficiaries, according to Paul Curley, director of college saving research at Strategic Insight.

A 529 college savings plan offers powerful advantages over savings or brokerage accounts because contributions grow tax-free year after year.

Then, when you tap a 529 to pay for a college or technical education, your withdrawals are not taxed. You may also get a state tax deduction each year for your contribution.

Harness the power of compounding as early as possible by opening a 529 for yourself in your 40s or 50s, not in your 60s.

You may also be able to tap into savings intended for other family members.

After putting her career on hold while raising five children and sending them to college with 529 savings, Laurie Alter, 60, plans go to law school next year. She will use leftover 529 money to help pay the bill.

Alter's financial planner helped her switch the beneficiary from her son's 529 plan to her own name.

A 529 must be in a student's name when he or she goes to college or a technical college.

It is not necessary to get a degree, but students must enroll in classes for credit or be part of a technical certificate program at eligible educational institutions to use 529 funds without penalty.

You can check colleges at https://fafsa.ed.gov/FAFSA/app/schoolSearch.

Money taken from a 529 plan for an unqualified expense will be taxed, as well as hit with a 10 percent penalty. Airfare, for instance, is typically not covered.

A 529 is also a smart retirement planning tool that would-be students can use to minimize taxes and make retirement savings last, said Jamie Hopkins, an American College of Financial Services professor.

If a retiree pulls money from a traditional individual retirement account (IRA) to pay for a college course, that money will be taxed.

Possible results: A greater portion of a person's Social Security could end up being taxed and Medicare premiums could rise for high-income retirees.

A Roth IRA could be used to pay for retirement college courses without being taxed, but Hopkins suggested reserving a Roth for other expenses.

His advice: While working, contribute the maximum possible to a Roth IRA and a health savings account before starting a 529 for yourself.

Still, Loewe's advice is to find existing college courses because it is tough to get a college to start a class for retirees.