529 College Savings Plans to the Rescue in Uncertain Times

By Patricia Roberts, Chief Operating Officer at Gift of College

July 28, 2020

Tuition and room and board payments are coming due while many colleges and universities have yet to finalize their plans for the upcoming semester. Parents remain anxious about the health, financial and social-emotional implications of sending their students off to campus. Those who have invested in 529 college savings plans may not realize, however, that there is flexibility built into these plans. That may be helpful with the scenarios that may develop in this unprecedented time.

A quick look at the following scenarios may help put 529 investors’ minds at ease:

A possible gap semester or year: If some or most of their courses are likely to be online versus in person, many students are uncertain whether it makes sense to immediately continue with their higher education studies this coming semester or school year. Accordingly, some are considering a gap year or semester. Fortunately, for those who have saved in 529 plans, there are no beneficiary age limits or time limits in which 529 funds need to be used. Thus, the funds can remain in the account until your child returns to school.

A change in housing arrangements: The availability of student housing is currently in flux at many colleges and universities as pandemic-related adjustments are made to living and dining arrangements.

Some students have been forced to quickly find alternative housing options as certain colleges and universities are lowering the number of dormitory rooms previously available to give priority to students who need to have “single” rooms because of underlying health conditions, and/or to set aside a supply of rooms to isolate students who have been exposed to the coronavirus or who need to be quarantined.

Additionally, students who originally did not plan to be on campus in the fall but who will now be as a result of study abroad or internship experiences being canceled are also having to find alternative housing options. This can be difficult with little or no space available on campus. Lastly, with the worry of potential exposure in a communal living setting, some parents, out of an abundance of caution, may be looking elsewhere for housing options. This may include places where students could live alone or with just one or two others to help limit their chances of possible exposure. Accordingly, off-campus housing is now in demand.

As a 529 account owner, if you decide to have your beneficiary live off-campus for any reason, as long as your account beneficiary is enrolled at least half-time, you can use your 529 account to cover the cost of living off-campus. Keep in mind this is limited to the extent it does not exceed the allowance for room and board, as determined by the school, that is included in the cost of attendance (for federal financial aid purposes). You can typically find this information listed on the school’s website.

Newly required equipment, supplies or services: There may be new requirements for attendance this coming semester that were not previously in place. For instance, if your student’s classes are now fully or partially online versus in person, and if a computer, internet connectivity, software or other computer-related equipment or services are now required for enrollment or attendance but are not provided by the school, you may use your 529 plan to cover those costs as long as the items are being primarily used by the student in connection with enrollment. Likewise, if masks or other protective equipment are required for enrollment or attendance but not provided by the school, it is likely you could use your 529 plan for those as well. As always, be sure to retain receipts for whatever purchases are made with 529 funds.

Refunds: If your student decides to delay enrollment, drop out of school after classes begin, or if the semester comes to an abrupt halt after you have taken a qualified withdrawal from a 529 plan and paid the school, you have 60 days from the date of any refund to recontribute it in a 529 plan to avoid the withdrawal being considered non-qualified and subject to tax consequences.

While nothing will fully put parent and student minds at ease during this time of uncertainty, hopefully understanding the flexibility built into 529 plans will be of some value.

This article was originally posted on thriveglobal.com on July 15, 2020.


About the Author

Patricia Roberts has helped tens of thousands of families prepare for the cost of higher education through her leadership in nearly every aspect of the 529 college savings arena over the past 20 years. She is currently Chief Operating Officer at Gift of College, where innovations are created to engage friends, family and employers to help individuals save for college and pay down student loan debt. Prior to this, she held key legal, product and 529 program management roles at major financial services firms, and designed and launched several first-of-their-kind philanthropic programs through which families received seed money for college savings accounts along with valuable financial education and incentives to help them save on their own. In her favorite role of all, she made it a priority to save a little at a time for her son’s higher education expenses by directing contributions from her paycheck into 529 college savings accounts. After 18 years of saving, she will be proud to see him graduate debt-free from college in 2021.