The ABC’s of 529 Savings Plans UNF

What 529 Pays

When you decide to have kids, your first thought is not how am I going to pay for college, but it might be your second. When my kids were little their dad and I opened up the 529 Savings Plan also known as a Qualified Tuition Plan (QTP).  Some families chose Florida PrePaid but we felt the 529 Savings Plan was better for our family.  Since 1996, 529 Savings Plans are a way of saving for college for your student. If you chose to open a qualified tuition plan or a relative set one up for you, then you and your student are now eligible to access the funds.  The funds from your 529 Savings Plan can be used not only to pay for higher education (starting in 2018 for elementary or secondary school tuition up to $10,000) but for room and board as well.  These funds are available to use up until the age of 30.

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 students education 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. Expenses for 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, was included in the cost of attendance (for federal financial aid purposes) during a particular academic period and living arrangement of the student. The actual amount 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 qualified higher education expenses the 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 their parents. Receipts should be well documented and 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  funds, they will disqualify those expenses from the tax credit. Read our Tax Time blog here.

Any change in the designated beneficiary of an interest in a QTP isn’t treated as a distribution if the new beneficiary is a member of the family of the old beneficiary. The change in beneficiary rule gives parents, or other donor’s, 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 the 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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