A bright future for kids
The parents who want to envision a bright future for their kids decide to create a 529 saving account. This account gives the parents taxpayers the advantage in terms of no tax paying. Through this account they can save money for their kid’s higher education almost tax free. If as a parent you know how to create the 529 college saving account, you should also know how to make withdrawals from your 529 plan if you want to take money out.
Need of an adequate knowledge
Adequate knowledge regarding withdrawals is necessary, otherwise, you can land in to penalty measures. In case of mistake, you will be forced to pay 10% penalty along with the interest because of your withdrawing for an unacceptable expense
So, the time has arrived when your kids flood back to their college life after summer vacations, internships or other activities. You be one of the far sighted parent who have funded a 529 saving plan for your child’s college fees. However, the big question arises that how to make withdrawals from your 529 plan.
The plus points of correct withdrawing
If you correctly withdraw the finds from the 529 plan, you can make best use of your tax benefits and increase your savings. Most importantly, you can also reduce your dependency on and the impact of other financial aid programs for which you are eligible.
529 saving pans are widely used by people of all income brackets and are acceptable in most of the financial situations. For this reason, 529 plan can get complicated if they are corresponding with different forms financial funding and federal student aid programs.
How to make use the money from 529 plan?
If you hold a 529 account and can withdraw the money from the funds easily, you will realize that these withdrawals are tax free. These withdrawals will allow you to pay expenses for higher qualified education or QHEE
You can pay fees for all your study related essentials such as tuition fees, writing equipment and textbooks that are required semester wise. You can also pay your room rent in college campus along with food expense. Expenses in terms of internet access, tech equipment and software all come under the category of high qualified education. So you can use the withdrawals from this account to pay such expenses as well.
Most importantly, you can also withdraw up to $10,000 additionally from the 529 account. You can use this money to pay the tuition fees of any private religious school where you desire to go and get spiritual education.
Can you withdraw the money to pay other expenses apart from QHEE?
If you withdraw the money from the 529 account to pay other expenses, the withdrawn money need to be returned. It is because, you can only make withdrawals from this account to pay for QHEE. For instance if the parent decide to withdraw the money from the 529 account to buy groceries for his college going child, they need to reimburse the withdrawn money to the account.
Make sure that in the event of an appraisal regarding 529 account, it is advisable that you maintain a bookkeeping that records all the transactions. It is because, 529 plans are self-reporting in nature and bookkeeping also makes you cautious that you do not withdraw the money from the two different 529 account for a same expense.
What to keep in mind while withdrawing?
Whether the parent or the child himself is an existing owner of a 529 account, it is advisable that they withdraw the maximum amount early. It is because, the future is always uncertain, and maximum withdrawals would mean that there is less chance of your money wasting in the face of imminent economic dooms.
Moreover, the withdrawals need to be made at right timings so that the impact of FAFSA is minimized.
If your 529 accounts are set in such a way that the transactions are made directly from account to institutions, then things are much better for you. However, the downside of such direct transactions is that if a student is already receiving financial aid from his institution then misunderstanding can arise. The university authorities can misinterpret the transaction as a form of scholarship funding and can reduce the financial aid the students has qualified for.
So, how to make withdrawals from your 529 plan requires a lot of carefully understanding of situatiosn and concepts. Moreover, you need to particularly make sure that the withdrawals from the 529 account is used to pay QHEE.
