By Lael M. Oldmixon, M. Ed., Executive Director, Education Trust of Alaska
July 16, 2024
As someone who appreciates the advantages of saving for education with a 529 plan and is a 529 account owner for my two beneficiaries, I applaud families who have diligently planned and contributed to a loved one’s account. When it comes to the pivotal moment of paying the first qualified expenses, account owners can spend less time stressing about how to pay for college by following these easy steps and more time celebrating the success of their savings journey:
Step 1: Calculate Your Qualified Education Expenses
529 plan account owners can withdraw any amount from their 529 plan, but only qualified distributions will be tax-free. The maximum amount you can withdraw tax-free is the total amount of qualified expenses paid during the year minus any amount used to generate other federal tax benefits.
- Add up expenses (e.g., college tuition, fees, books, supplies, equipment, computers, and room and board).
- Subtract tax-free educational assistance (such as scholarships or employer programs).
- Subtract expenses used to justify the American Opportunity Tax Credit (AOTC) or Lifetime Learning Tax Credit (LLTC).
The remaining amount is your maximum withdrawal amount. You should consult a tax professional or financial advisor to learn more about how tax-free educational assistance and tax credits may impact your 529 withdrawal.
Step 2: Time the Withdrawal
Withdraw your funds in the same calendar year you plan to use them so that the year’s withdrawals align with the year’s education expenses. Be sure to keep all your receipts. Toward the end of the calendar year, review your expenditures to make sure you have withdrawn funds to cover all qualified expenses. Be sure to give your 529 plan administrator enough time to process your withdrawal request in the same calendar year (approximately 10 business days).
Step 3: Select the Recipient
Account owners are responsible for requesting the withdrawal and may choose to have the funds sent directly to the school, to the beneficiary, or to themself via check or ACH.
If you are sending the funds to the school, be prepared to provide your plan administrator with the beneficiary’s name, student ID, and the school’s name and address.
Step 4: Request the Withdrawal and Plan Ahead
Most plans allow you to request a withdrawal on the phone, online, or via paper form. Visit the plan’s website and review the options available to you.
- Some plans offer a service to expedite payments to schools via ACH or through an online withdrawal platform for a small fee. In my experience, the nominal fee is worth the freedom from worry.
- While mailing a check to the school may be free, it can take at least 10 business days to arrive and has the risk of getting lost in campus mail.
- Sending the funds directly to your bank account or via check to your home is an easy and free way to receive the withdrawal. However, you will still need to pay the school with a check, credit card (which may include a fee), or bank transfer. Avoiding this additional step may be worth any ACH fees described above.
Whichever method you choose, once you have finalized the withdrawal request, follow up with the school to ensure the funds hit the account, keep an eye on your bank for the funds to arrive, or watch for the check in the mail.
End-to-end, it’s recommended that you give yourself a buffer of about 10 business days. If the payment is due on August 15, consider making the request for withdrawal by about August 1.
Last fall, I wrote an article about navigating the first year of college, which is a guide for both students and parents. While the tips may be most beneficial for your student, they may also be helpful for you!
Navigating the First Year of College: A Guide for Both Beneficiaries and Their Parents
Here’s a preview of the article:
Before Arriving
- Read all communications from your university or college.
- Review your admissions and financial aid status. Are all outstanding documents submitted?
- Watch for instructions about logistics like deposits, housing deadlines, fee payment, and class registration.
- Request your 529 distribution at least ten business days before the fee payment deadline.
Continue reading and print the complete list here.
About the author:
Lael M. Oldmixon, M. Ed., is the Executive Director of the Education Trust of Alaska, which offers Alaska’s three 529 plans: Alaska 529, the T. Rowe Price College Savings Plan, and the John Hancock Freedom 529. She lives in Alaska with her spouse, two children, and two dogs.