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Tips for Utilizing Your Grad’s 529 Plan

Graduation season is upon us and if you’ve got a newly minted (or soon-to-be minted) high school grad, you’re probably already thinking through this summer’s pre-college plans. With a fresh diploma in your grad’s hand and acceptance letters sign and sent, you’ve likely got a few questions about how the financial aspect of this new chapter is going to play out.

If you’ve saved for your child’s higher education through a 529 plan, it’s time to look into how to make the use of this money for your student’s college needs. Here are some ways to put grad’s 529 plan to good use.

Reserve 529 Plan Withdrawals for Higher Education Expenses

Qualified higher education expenses are the only ones for which you can use your student’s 529 plan withdrawals. These include many expenses through your student’s college or university, such as tuition, room and board, meal plans, and textbooks. Other school-related expenses, like tech for your grad to keep up with their studies, can qualify.

Expenses like travel to and from campus or dorm decor are not considered qualified expenses by the IRS and can incur a higher tax rate on your 529 withdrawals. In general, it’s best to stick with IRS recommendations for spending your 529 funds and consult your financial advisor with specific questions.

Encourage Your Grad to Keep Relevant Receipts

Since you’re probably not living on campus with your grad and may have a few hundred or thousand miles separating you from your student’s new address, it’s important that your college student is on the same page as you when it comes to allocating education expenses. Clue your student into the expenses that they can count under their 529 plan withdrawals and encourage them to keep relevant receipts for these expenses. With these in hand, your tax time records will be much easier to maintain.

Mind Your Dates

When taking withdrawals from your 529 plan, it’s important to keep your related expenses within the same tax year. If you take money out with plans to pay a future bill, you run the risk of overdrawing your account if you don’t make payments until the following tax year. Plan accordingly when scheduling your bill payments to avoid running into problems with next year’s withdrawals.

Consider Future Contributions

Just because your student is soon to start their college career, you don’t need to stop contributing to their 529 plan. In fact, some parents find that they can increase their college contributions after their student starts school since their household budgetary needs are lower with one less family member living at home.

Additionally, since many parents plan for their 529 plan around ballpark figures, some families prefer to add additional funds once they have specific figures based around their children’s actual higher education needs. Talk with your financial advisor to get the best idea of whether your 529 savings are enough to cover your student’s expenses.

If you’re looking to make the most of your existing 529 plan or are still a few years away from your children’s graduations and want to start saving, contact Puckett & Sturgill Financial Group to meet CERTIFIED FINANCIAL PLANNER™ Jacob Sturgill. Jake will help you work through your family’s higher education funding needs.

Prior to investing in a 529 Plan investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.

Non-qualified withdrawals may result in federal income tax and a 10% federal tax penalty on earnings.

What to Ask Before the College Tour

Aaron Puckett, MBA, CFP®

Recently, one of my clients said, “You can only be as happy as your least happy child.” While I’m not certain that I completely agree, the point that she was making certainly hits home. For those of us with children, our hearts are bound to them and we desire very strongly for their happiness and well-being. When your child enters their junior year of high school, and you begin the journey of selecting a college or university for them to attend, don’t underestimate the influence of your heart. Why? Because no matter how much you’ve planned ahead and saved in a 529 college plan or elsewhere, at the end of the day your desire for your child to be happy will often undermine your ability to select the college that offers the most value for them over the long-term.

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