Many times at my workshops people will come up and ask me questions about 529 plans. I totally understand that there are many questions especially due to the amount of misunderstandings out there about this program. So, below is a list of the most common questions I get and the answers.
1. Do I have to use the money at a state school?
Not necessarily. Your 529 Plan account assets can be applied at virtually all accredited
colleges and universities in the United States as well as to other eligible foreign institutions.
2. What expenses can I use the money for?
You can use the funds for qualified higher education expenses like tuition, books, etc.
3. How and when can I take distributions from the account?
Anytime you need it for your school related expenses. Now, please take note, distributions for non-qualified expenses may incur federal income tax and a 10% federal penalty tax. Qualified distributions include money for tuition, books, etc.
4. What about room and board? Good question. Here’s an answer that could help according to IRS Publication 970, it is written there that qualified education expenses are fees that are paid to the institution as a condition of enrollment or attendance. So, a lot will depend on what the institution has noted as a condition of enrollment.
5. How do I withdraw funds from my 529 Account, and can I take loans against my 529 Account?
All you need to do is simply fill out the College Investing Plan Distribution in PDF form. Indicate the recipient or who is going to receive the money. You could be a parent who wants to send it to your child or you can be the student yourself requesting that you directly receive it. Now, please note, you cannot take a loan out against the 529 account.
Always keep a record of your payments so you won’t have a hard time filing for your tax returns.
6. How about if my child earns a scholarship?
The amount of the scholarship award from your 529 Plan can always be withdrawn without worrying about the penalty; but remember that other taxes may still apply.
7. Will investing in 529 Plan affect eligibility for financial aid?
Based on the Expected Family Contribution calculator (EFC), 529 assets may have a relatively small affect on Federal financial aid eligibility as they are considered assets of the parent (Participant). Moreover, accounts can be considered assets of the child (Beneficiary), such as a UGMA/UTMA account, are most likely to have a greater effect on the Federal financial aid eligibility in the EFC calculation. This is something that I always check and advise on for my clients.
This was just a brief overview and by no ways everything you need to know about a529 plans. For more information on how you can use this tool, and other financial vehicles to pay for college, contact me, Manuel Fabriquer, at (408) 918 3068 and let me save you thousands on the cost of college!