Parents who have saved for their kid’s college educations by setting up a 529 college savings plan or Education Savings Account (ESA) will need to know the rules for taking withdrawals and avoiding taxes. IRS Publication 970 has specified that the money taken from these accounts is supposed to be a tax-free when it is withdrawn for certain education expenses as a Qualified Education Expense (QEE). This article explains how some of the rules are different for 529 plans and ESAs. “Unlike 529s, tax-free withdrawals from ESAs for qualified expenses aren’t limited to college or other postsecondary programs.” Parents need to also be aware about which common expenses qualify and which ones don’t. Understanding the rules for withdrawing money from education accounts will help parents save a lot of money on their taxes. It is a good idea to speak with an experienced estate planner about these and other issues.
See Ray Martin, The rules for withdrawing from education savings accounts, CBS News, February 22, 2016.
