The ABC’s of 529 Savings Plans UF

What 529 Pays

When you decided to have kids, I would bet your first thought was not, “How am I going to pay for college?” But it might have been your second. When my kids were about five years old, I made a decision to buy a Prepaid Florida Tuition Plan. This is one type of plan, available here in Florida, which locks in rates for a Florida college or university. The 529 Savings Plans (or what is also known as a Qualified Tuition Plan – QTP) was a fairly new savings plan at that time,  and I chose not to invest in one.

Alas. Regret 101 for my approach to college savings. I wish I had not overlooked this type of universal tuition savings plan. I might even have asked their grandparents to invest in a 529 Savings plan as opposed to sending them money for birthdays and holidays. Since 1996, 529 plans have been a solid and straightforward way of saving for your student’s college experience. If you have one of these qualified tuition plans (or a relative has set one up for you), then you and your student are now eligible to access the funds. Lucky you! The funds from your 529 plan can be used not only to pay for higher education but for room and board as well. (In 2018, they also began to allow funds from a 529 plan to be used for elementary or secondary school tuition up to $10,000.)

The SECURE Act signed into law on December 20, 2019, expanded the benefits of 529 plan including adding student loan repayments and the costs of apprenticeship programs as qualified expenses for distributions made after December 31, 2018.

If you received refunds from your student’s educational institution, you should contact your plans administrator as failure to re-contribute the refunds may result in taxable income if not returned within 60 days of receiving the refund.

Tuition and Equipment

• Tuition and fees, books, supplies, and equipment. Eligible expenses for any special needs services needed by a special needs beneficiary must be incurred in connection with enrollment or attendance at an eligible post-secondary school.
• The purchase of a computer or peripheral equipment, computer software, or Internet access and related services if it’s to be used primarily by the beneficiary during any of the years the beneficiary is enrolled at an eligible post-secondary school. (This doesn’t include expenses for computer software for sports, games, or hobbies unless the software is predominantly educational in nature.)

Room and Board

There are special rules that apply to room and board. Expenses for room and board must be incurred by students who are enrolled at least half-time.

• The allowance for room and board, as determined by the school, is included in the cost of attendance (for federal financial aid purposes) during a particular academic period and for the living arrangement of the student. The actual amount is charged if the student is residing in housing owned or operated by the school.

You may need to contact the eligible educational institution for qualified room and board costs. A student who lives off-campus can include in the qualified higher education expenses reasonable room and board costs as determined by the QTP, up to the federal financial aid allowance (as per above).

• If your student is living at home, then your student should make actual room and board payments to you, their parents. Receipts should be well documented. You need to spend the money in the same calendar year as the withdrawal, not the school academic calendar year but the actual 12 month calendar year.

In addition, you should check with your financial advisor as there should be coordination with college tax credits. If you pay for tuition and required books with the 529 plan funds, they will disqualify those expenses from the tax credit. Read our Tax Time blog.

Any change in the designated beneficiary of an interest in a QTP isn’t treated as a distribution if the new beneficiary is a family member of the old beneficiary. The change-in-beneficiary rule gives parents (or other donors) flexibility to use the funds for any family member who needs them most. For example, if a designated beneficiary decides not to attend college, or receives a full scholarship, another child can be named as long as this new child is a member of the family. Or if funds remain in the QTP after a child has finished school, a younger family member can be named to use the balance. For more information, you should contact the custodian of your 529 plan.

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