<img height="1" width="1" style="display:none" src="https://q.quora.com/_/ad/bdd9d941ae754c498fe2d2326d029ffa/pixel?tag=ViewContent&amp;noscript=1">

Strategies for Withdrawing Money from Your 529

Featured Stories

Filter By Categories

After all that time saving in a 529 college savings plan for your student’s college education, it’s time to finally spend the money on their college education.


We talked to Betty Lochner, the 529 National Awareness Campaign liaison, to get her best advice on strategizing 529 plan withdrawals.


Here’s what you need to know:


What kind of schools you can use 529 plans for 


529 plans aren’t just for saving for four year universities. You can use 529 plan savings for paying for anything from technical schools to four year schools.


Thus, your family can discuss the range of options for education post graduation for using 529 plan funds. Career discussions and exploration should always be part of college planning.


What expenses can be withdrawn


You can withdraw funds for tuition and fees, room and board, textbooks, computers, and equipment. However, there are times when you should be very careful about keeping receipts.


If expenses are for room and board for a student living at home, keep good receipts and be able to explain how much of your mortgage or rent is for the student. 


When it comes to cost of equipment or computers, you have a school required reason for an item to cost much more than the average item. For instance, I spent $6,500 on camera equipment for school, but the school had $10,000 listed as the suggested expense. Since, I spent less than the cost of attendance estimate, it’s withdrawable from 529 accounts without a tax penalty.


One expense that isn’t allowed to be withdrawn is travel. 


How to withdraw funds


Find out when payments are due for expenses such as tuition and fees and room and board. Miscalculating payment dates could cause your student to be dropped from classes or lose their spot in dorms.


Request payments two weeks ahead of due dates for withdrawals to guarantee payments are made on time. Because 529 plans contain investments, it can take time for accounts to settle after enough mutual funds are sold to cover the amount you withdraw. Payments may be faster if the withdrawal is from money market or savings accounts that are already cash within the 529 plan.


Also, plan on extra time for making a payment to a school if you request the money to be sent to you instead. The reason is you’ll then take time to pay the school yourself.


Luckily, electronic transfers make payments to anyone much faster than it used to be. The actual request can be made either online or by phone, depending on the rules of your individual 529 plan.


What your long term withdrawal strategy is


Ideally, planning for 529 plans start in junior year of high school or early. he reason why is when you plan 529 plan withdrawals, you’re also considering overpaying for college and financing strategy. The start to the process is always looking for colleges within your physical and student loan budget.


After you’ve evaluated your budget, you can think about how you’d like to divide up your 529 plan savings. For instance, I told my kids, I’ll pay for your first four years and you’ll have to pay for grad school if you decide to go, says Lochner. 


However, knowing they have enough saved for their undergraduate years, they could have saved the money for grad school and paid for their own undergraduate educations with scholarships, work, and loans. Many families choose this strategy because loans for grad school are issued by the federal government at a higher interest rate than for undergraduate loans.


Note: Because 529 plans have tax benefits such as not paying taxes on growth, you can’t withdraw money from a 529 plan for expenses that are paid later by tax credits. If you meet the requirements for the American Opportunity Credit, don’t pay for the first $4,000 of tuition and fees with 529 plan funds. You could lose out on up to $2,500 back on your tax return.


5 Takeaways

  • 529 college savings accounts can be used for post secondary education from technical schools to four year universities.
  • In order to withdraw funds without tax penalties or income tax collected, you have to use the money to pay for qualified expenses such as room and board, tuition and fees, computers, textbooks, and required equipment.
  • Keep receipts and prepare a good explanation for equipment that’s on the pricey side. You’ll need to have some evidence that your student really needed to spend that much.
  • Don’t give up tax credits because you saved in a 529 plan.

Edmit's advice helps you to be better off after graduation.

  • Merit and financial aid estimates based on your student profile
  • Earnings estimates and financial scores for your college and major
  • Recommendations to save thousands on college

Sign up for updates

Popular Tags

Financial Aid and Scholarships* Cost of College* paying for college financial aid FAFSA Student Loans* grants and scholarships federal student loans Saving for College* Salary and Career* college tuition 529 plan cost of attendance expected family contribution private student loans college financial planning financial aid award taxes career college savings plan room and board on-campus housing merit scholarships budgeting for college college expenses federal financial aid merit-based financial aid private universities public universities edmit hidden gems edmit team college costs parent PLUS loan college applications living expenses CSS profile education expenses financial need income application fees career fit choosing a major financial aid appeal off-campus housing choosing a college college majors loan forgiveness affordable college degree programs loan repayment repayment plans researching careers student loan assistance student loan debt work-study application fee waivers career exploration college search coronavirus edmit scholarship institutional aid net price private scholarships SAT career goals college visits in-state tuition prepaid tuition plans ACT budget free tuition international students internships need-based financial aid need-blind colleges qualified higher education expenses retirement savings school-based scholarships southern colleges standardized testing tuition discount tuition guarantee tuition payment plans 401k UGMA UTMA applying to college college financial health college ranking systems college spending college transfers credit score discretionary income distance learning education savings accounts fees financial literacy full ride scholarship gap year grants health insurance options investment ivy league schools liberal arts degree meal plans midwestern colleges need-aware colleges out-of-state tuition saving state aid tuition increases western colleges 568 presidents group Inversant MEFA asset protection allowance best price campus life college advisor college credits college deposit college viability community college concurrent enrollment cost by region cost by state crowdfunding dorms early decision educational expenses esports fee waivers financial wellness for-profit universities fraternities and sororities full tuition graduate school home equity loan income share agreements job applications line of credit lists medical expenses medical school military benefits net price calculators new england colleges non-profit universities online learning online tuition out-of-state students percent need met private college consultant remote learning self-assessment siblings small business state schools student bank accounts student organizations subsidized loans title IV schools travel expenses tuition decreases tuition insurance tuition reciprocity undocumented students unsubsidized loans work-based learning