Back-to-school season is in full swing! Whether you are saving for college or spending on it now, we’ve got you covered.
Paying for College Now?
President Biden announced student loan relief for qualified borrowers last week. Below is a summary of the newly announced program. More detail is expected shortly and can be found on the Federal Student Aid website.
Still saving for college?
The biggest challenge when planning for your child’s education is the financial cost, including tuition and academic expenses. At Heritage Financial, our Wealth Managers advise clients to start saving early. This way once the bills begin arriving, they feel more confident about paying them.
What Can You Buy With 529 Distributions?
It’s not just for college – funds can be used for K-12 tuition at public, private, and religious schools, four- and two-year colleges, trade schools, graduate programs and some international institutions.
Good news, distributions are not taxed at the federal level, but you do need to understand the rules for qualifying expenses. It is important to keep records and receipts of education related costs because nonqualified distributions are reported to the IRS, to assess any tax and penalty that may be due. If expenses are qualified, one does not need to report the distributions from the 529 plan.
What is a 529 Qualified Educational Expense?
Education at all levels is important, and planning is essential for achieving this challenge successfully. To take advantage of the 529 distribution, you need to submit your request for the cash during the same calendar year. If you inadvertently request cash during the academic year, you may owe taxes as a nonqualified withdrawal.
- College or graduate tuition and fees at an accredited institution.
- Vocational, trade school, and registered apprenticeship program tuition and fees. For example, culinary students can draw from the 529 account to pay expenses related to culinary institute courses. The institution must participate in the U.S Department of Education for federal student aid.
- K-12 education including public, private, and religious institutions, are eligible for 529 plan distributions up to $10,000 per beneficiary, per year for tuition. It is important to note that 529 distributions used during K-12 years only applies to tuition. In other words, the list of other eligible expenses such as books, supplies, room and board, etc. is for college/graduate programs only.
Lifestyles and Supplies
Sit down with family members and the future student to create a withdrawal plan that works for the student’s needs, the school’s curriculum and the program’s eligibility. It helps everyone to understand how best to use the 529 distributions while establishing a manageable budget for qualified and nonqualified purchases.
- Campus housing can be paid through 529 distributions including college room and board fees. Off-campus housing rentals qualify up to limits set by each school.
- Books and supplies including paper, pens, and textbooks required by the specific course are qualified expenses. Schools set the budget limit for books and supplies so check with the school of attendance for the allowable amount each academic year.
- Special needs equipment and services qualify for 529 distribution. Students using equipment for mobility (wheelchairs) may be eligible for 529 distribution purchases. Depending on the circumstance’s transportation may also apply.
Computers and some electronics are considered qualified education expenses for 529 distributions. They must be required as part of the students’ study programs. Students need to check with the school about class or course prerequisites that include computers.
- Computers, printers, and laptops must be used primarily by the student during any of the years the student is enrolled at the eligible educational institution.
- Software may qualify as a 529 distribution expense. For example, technical engineering or design classes may require special software programs.
- Internet services can be paid using 529 funds.
Be sure to check with the school; there may be specialized expenses as students enter college as a freshman. The same applies as they complete the final years of study, preparing to enter the career world.
Keep in mind, 529 distributions are subject to guidelines for financial aid eligibility, state and learning institution limitations. If you are unsure about anything, check with your financial advisor or 529 plan provider. They can help develop the best strategy for 529 withdrawals.
- Ready to begin the college search and application process? Watch the replay of our webinar that provided an overview of the college process, including financial aid.
- How much should you invest each year to have enough money to cover all college costs? This college savings calculator can help.
- Are you fortunate enough to have saved more than funds than needed? This article will help you decide what to do with the extra money in your 529 plan.