A college bill has just come due, and you think, “No problem! We’ve been saving up money in a 529 college savings plan, so let’s just dip into that!”
Wait, wait—wait just a second.
Here’s an important question to ask before you do.
Before dipping into a 529 college savings plan, ask yourself:
“Where, exactly, should I have the 529 money sent?”
Try not to have 529 college savings plan money sent straight to the college.
The reason, according to this article by CPA Joseph Hurley, founder of SavingForCollege.com, is that some colleges might treat 529 money as a “scholarship” and use it as an excuse to strip your son of some or all of the financial aid money he’s been awarded. Yikes!
Not every college will do this—but some will.
Before you take action, call the college financial aid office and ask this:
“If some money from a 529 college savings plan lands in my daughter’s account today, will that in any way diminish her financial aid award?”
Write down the answer you’re given, along with the name of the person you’ve spoken to.
If the college’s answer is yes, then transfer the 529 money to your own account first—and then on to the school.
I urge every parent with a 529 plan to read this cautionary article provided by SavingForCollege.com.
In it, you’ll learn:
1. Why accountants urge you to be carefully aware of the calendar before dipping into a 529 college savings plan. (If you pull money out of a 529 plan in December and send it on to the college in January, that could be trouble.)
2. What you can do to save yourself if you suddenly realize, “Oh no, I think we just took too much out of our 529 plan—we need to do something to avoid paying tax and penalty on what we just took out.”
3. Why you’ll want to ask yourself, “Will I be claiming an education tax credit on my federal tax return next spring?” before pulling money out of a 529 college savings plan.
You’ll find the very helpful article here.
SavingForCollege.com provides additional helpful 529 college savings plan advice for parents on these topics:
Is your child’s grandparent thinking of opening a 529 college savings plan?
This can be a great idea! Learn why in the detailed article I’ve written for parents and grandparents here.
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When you’re a parent, it feels great to know that you’re taking practical steps to set your kid up for successful college and career life.
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What is SavingForCollege.com?
SavingForCollege.com is an independent source of information and education on 529 plans and other college savings topics. SavingForCollege.com was originally founded by CPA Joseph Hurley, who, along with his wife, invested in 36 different 529 plans for their two children as part of his 529 college savings plan research. Joseph Hurley is also the author of the book Savingforcollege.com’s Complete Guide to 529 Plans.
Who is Jeannie Burlowski?
Jeannie is a full-time academic strategist, podcast host, and sought-after speaker for students ages 12–26 and their parents and grandparents. Her writing, speaking, and podcasting help parents set their kids up to graduate college debt-free and move directly into careers they excel at and love. Her work has been featured in publications such as The Huffington Post, USA Today, NerdWallet, and US News and World Report, and on CBS News.