We Saved for a Certain Future for Our Child. Instead, We’re Looking at Potentially Losing a Lot of Cash.

Pay Dirt Photo illustration by Slate. Photo by Getty Images Plus. Pay Dirt is Slate’s money advice column. Have a question? Send it to Kristin and Ilyce here. (It’s anonymous!) Dear Pay Dirt, We knew our only child was smart, so we opened a California 529 college savings account in kindergarten. It now has $110,000 in it. Then at puberty, everything fell apart. Despite the efforts of our team of medical, psychological, and educational specialists over the last few years, our neurodivergent teenager is on track to flunk out of high school due to non-attendance and non-completion of work. College doesn’t look realistic any longer. Holding a job doesn’t, either. What’s the best way to get the money out of the 529 account? —So Much Money, So Many Problems Dear So Much Money, The good news is that the money you originally saved in the account is available to withdraw, tax and penalty free, even for non-educational purposes. It’s only the growth on that money (what you earned over time) that’s subject to income tax and, unfortunately, yes, a 10 percent penalty. But there are options to waive the penalty or use the growth in ways that won’t trigger it. The IRS has a rule that waives the penalty if the beneficiary on the account meets a specific definition of disabled. If you can get documentation from a medical professional to prove that your child can’t engage in “any substantial gainful activity because of his or her physical or mental condition,” you might qualify. Another option is to roll over some of the 529 funds into a Roth IRA for your child. It’s capped at $35,000, and the account has to have been open for at least 15 years, but this is an option that allows you to keep the earnings intact and give your child some long-term financial security. Finally, you can also change the beneficiary to another family member. You mentioned you don’t have other kids, but you can also change the beneficiary to you or your spouse if either of you are interested in using the funds for education-related expenses. Please keep questions short (<150 words), and don’t submit the same question to multiple columns. We are unable to edit or remove questions after publication. Use pseudonyms to maintain anonymity. Your submission may be used in other Slate advice columns and may be edited for publication. Dear Pay Dirt, I have an old friend who’s really, really bad with money. He knows this. He’s in his late 50s now, and he’s made some really poor decisions over the years. He’s already filed for bankruptcy once. After losing his very well-paying job due to a reduction in force, he spent down all of his savings and wiped out his entire 401(k) in two years. I have no idea how he accomplished such a feat, but here we are. Now he is now trying to rebuild his financial life. I want to help him, and he seems willing to let me help him now. He finds himself driving for a rideshare company and saddled with a $70,000 debt to Uncle Sam for all of those 401(k) withdrawals. He’s hired some online law firm that an online site rated highly to help negotiate with the IRS to lower the amount he owes. The one piece of property he owns—a condo that has depreciated in value due to a soft market where he lives—is the one thing he really doesn’t want to lose. I’m thinking he’s just spending more money on bad decisions. The law firm is charging him $7,500 over 10 months to try lowering his tax bill, but I can’t imagine they’ll be successful. He knows he screwed up. He owes the money. He has property, and IRS wants its money. Right? Should he just try to work out a long-term payment plan with the IRS and try to cancel the contract with the law firm or do those firms actually succeed sometimes? —Good Money After Bad Dear Good Money After Bad, Unfortunately, your friend’s situation is pretty common. People find themselves carrying a bit of debt that quickly spirals into something they can’t control. And there are so many companies out there ready to take advantage of people in vulnerable financial situations. You’re right: The IRS wants its money. And they have the power to collect it, so fighting back isn’t easy. The upside is, the IRS is generally pretty open to installment agreements—the payment plan you mentioned. But their Simple Payment Plan is generally for people with $50,000 of debt or less. With a $70,000 balance, they might require him to jump through a few more financial hoops. Still, jumping through those hoops might be one way to avoid the consequences of not paying his tax debt. So I can understand why your friend reached out to a law firm. This whole situation sounds totally daunting. When these firms talk about negotiating tax bills, that usually means putting in an Offer in Compromise (OIC), which is basically a formal agreement where the IRS allows a taxpayer to settle their debt for less than the full amount. Your friend can do this on his own, but the bar for qualifying for an OIC is pretty high and often requires a lot of documentation—that might be where the law firm comes in. The IRS would look at your friend’s total assets, his ability to pay off the debt over time, and his income. So yes, losing the condo might be a possibility. Again, and the law firm might be able to help him avoid that scenario. But I think your instinct to be cautious makes sense, because the tax and debt relief industry is filled with predatory companies that overcharge people and promise results they can’t guarantee. In fact, the IRS explicitly warns taxpayers about companies like these. I can’t say whether or not he’s in good hands, but I would take the rating with a grain of salt. So many of these firms use awards and rankings as a marketing ploy to sound more authoritative than they actually are (and many of the sites doing the rating and ranking have their own financial play going). That doesn’t mean they aren’t legit, but $7,500 is a hefty fee, and there are some red (and green) flags to look out for. Before forking over thousands of dollars, maybe your friend should talk to a Certified Public Accountant (CPA) who specializes in tax resolution. CPAs usually charge by the hour or charge a flat fee for specific tasks, as opposed to a massive upfront retainer for the promise of a lower bill. Your friend might also qualify for a Low Income Taxpayer Clinic (LITC), which offers free or low-cost legal help for people in similar situations. Either way, it’s wise to get a second opinion from a qualified professional to see what his options are before spiraling into even more debt. —Kristin More Money Advice From Slate I need help to break a bad family pattern I’m in with my older brother Alan. He and I are both single adults in their late twenties who live independently from our parents. We both have decent jobs, with him making significantly more money working in a tech field. Despite him being well set up in life, Alan contributes nothing to family holidays. Never miss new Slate Advice columns Get the latest from Prudie and our columnists in your inbox each weekday, plus special bonus letters on Saturdays. Advice Family Personal Finance