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529 Withdrawal Reminder

529 Withdrawal Reminder

August 18, 2023

As the summer draws to a close and students prepare to head back to college, families with 529 plans should take the time to review and understand the eligible expenses that can be covered by these valuable education savings accounts. The beauty of a 529 plan lies in its tax advantages and flexibility, but to make the most of it, it's crucial to know which expenses qualify. In this blog post, we'll explore what qualifies as eligible 529 expenses, helping you plan ahead for your loved one's educational journey.

What is a 529 Plan?

A 529 plan is a tax-advantaged savings vehicle designed to encourage saving for future education expenses. These plans are sponsored by states, state agencies, or educational institutions, and there are two main types: prepaid tuition plans and education savings plans. The latter, education savings plans, are the more common type and offer investment options to help your savings grow over time. What’s more, some states allow contributions to be deducted from state income tax.

Eligible 529 Expenses

Tuition and Fees: One of the most fundamental expenses covered by a 529 plan is tuition and fees. This includes the cost of enrollment, registration, and even mandatory course fees.

Room and Board: If the student is enrolled at least half-time, room and board expenses are considered eligible. This can include both on-campus housing and off-campus housing expenses within reasonable limits.

Books and Supplies: The cost of required books, supplies, and equipment necessary for enrollment in the institution can be covered by your 529 plan.

Technology: In today's digital age, technology expenses are often crucial for education. Laptops, tablets, software, and internet access that are required for coursework can all be considered eligible expenses.

Special Needs Services: If the beneficiary has special needs, certain expenses related to their education can be covered. This might include specialized equipment, tutoring, or therapy services.

K-12 Education: While 529 plans are primarily associated with college expenses, recent changes to the tax law now allow for limited K-12 education expenses to be covered as well. However, there are some limitations and it's important to check with your plan's specifics.

Apprenticeship Programs: Certain registered apprenticeship programs qualify for 529 plan coverage. This can be a great option for students pursuing non-traditional educational paths.

Student Loan Repayments: As of the SECURE Act passed in December 2019, qualified education loan repayments of up to $10,000 for the beneficiary and $10,000 for each of the beneficiary’s siblings can be made using 529 plan funds. It's important to note that this is a lifetime limit per individual.

Planning Tips

Keep Documentation: It's important to retain all receipts and records of eligible expenses. This documentation will be valuable when it comes time to make withdrawals from your 529 plan.

Understand Plan Limits: Each 529 plan may have different limits on eligible expenses, and some expenses may only be partially covered. Familiarize yourself with your plan's guidelines to make informed decisions.

Plan Strategically: While many expenses are eligible, it's wise to plan your withdrawals carefully to avoid overpaying for educational costs. Unused funds can continue to grow tax-free for future educational needs.

So, to conclude, as the academic year approaches, knowing what qualifies as an eligible 529 expense is vital for families utilizing these accounts to save for education. From tuition and fees to technology and even student loan repayments, the range of eligible expenses is expansive. By understanding these expenses and planning strategically, you can make the most of your 529 plan's benefits, ensuring that your loved ones receive the education they deserve without unnecessary financial stress.