Considerations for 529 Plan Withdrawals

Withdrawing funds from a 529 education savings plan can come with complications when the requirements and consequences are not fully considered. Here are considerations when planning to withdraw 529 plan funds:

• The tax exempt benefits of the plan only apply to qualifying higher education expenses.
• State penalties may apply if deposits to the plan received tax breaks from state income tax.
• Timing for withdraws are key, and careful consideration should be given to how much of the education expenses should be paid with 529 plan funds as spreading out the fund may bring more benefit than paying all education expenses early until the fund is exhausted.

See Kevin McKinley, The Pitfalls and Perils of 529 Withdrawals, Wealth Management, March 25, 2015.

Special thanks to Jim Hillhouse for bringing this article to my attention.