How To Pay For College Using a 529 Savings Plan for College Tuition and Expenses Written by College Coach Guest Authoron May 29th, 2012 Bright Horizons College Coach occasionally features blog posts written by guest authors. You’ll find more information about each guest author in the About the Author section on the blog post. Learn More About College Coach 529 savings plan, irs, paying for college, saving for college, Happy 529 Day — aka Educational Savings Day (5/29, get it?). A toast to all the savers! If you have a child enrolling in college, and you’ve saved for it in a 529 Savings Plan, congratulations! It’s time to get your tax break! While paying for college with 529 Plan assets is not difficult, there are a few things to keep in mind. Here’s what you should know: Eligible expenses. Remember, you get to use 529 Plan assets tax and penalty free at institutions that are eligible to participate in US federal financial aid programs if you pay for tuition, room and board (your child must be registered in a degree program at least half-time in order to use your 529 Plan tax and penalty free for room and board), or required books, fees and supplies. Almost all US colleges, and several hundred outside the US, are eligible institutions. Withdrawing funds. Most plans will allow you to authorize a withdrawal of funds on-line or by submitting a paper form. You can have a check paid to yourself, to the college on behalf of the beneficiary, or sometimes directly to the student. You do not have to withdraw funds as you pay expenses, and if you choose, you can make one withdrawal toward the end of the calendar year for all eligible expenses accrued within that calendar year. My student got a scholarship! Remember, you can make a penalty free withdrawal from a 529 Plan up to the value of grants and scholarships the student receives. You’ll have to pay income tax on the withdrawal, but at least there would be no added ten-percent penalty. Think about the education tax breaks. Many parents who pay for their child’s college tuition get a tax break for doing so. But they can’t use 529 Savings Plan assets tax free for the same tuition expenses for which they take this tax break. Be careful to consider the tax breaks before you make that 529 withdrawal. What about grandma’s 529? Unfortunately, a payment made by someone other than a student’s custodial parents for a student’s college education can have a big impact on the student’s financial aid eligibility the following year. If your student is lucky enough to be the beneficiary of a relative’s 529, consider using those assets to pay for the student’s last year of college, since those payments will be too late to hurt the student’s financial aid eligibility. What if you have a loss? 529s are great if you’ve made money on them, but many people have less money in their 529 than they invested. If you have a loss in your 529, consider taking a “miscellaneous 2% itemized deduction” instead of using the funds to pay for college directly. You may be able to get a bit of a federal income tax break if you do. Be careful, though, if you were able to take a state tax deduction for your contributions, your state may “recapture” those deductions making this strategy less useful. Again, congratulations on saving for college. Now go ahead and get that tax break. You’ve earned it! Learn more about College Coach's College Financing Experts. Related Resources Read | Posted on September 4th, 2024 Colleges that Offer the Most Financial Aid Read | Posted on July 17th, 2024 Everybody Pays: College Costs Beyond Tuition Read | Posted on July 10th, 2024 Net Price Calculators: The Good and the Bad
