December 8, 2021 – Here is a step-by-step outline of how to determine the amount of tax-free 529 plan savings that can be withdrawn:
- Only “qualified education expenses“ can be withdrawn tax-free.
- First, add up college expenses, including tuition, fees, books, supplies and equipment, and room and board if the student is enrolled on at least a half-time basis. You can also add K-12 tuition and fees, up to $10,000 per year.
- Then subtract any tax-free educational assistance, including tax-free scholarships, employer programs, veteran’s benefits, and any expenses used to justify educational tax credits (American Opportunity Tax Credit and Lifetime Learning Credit).
- Make sure you withdraw the funds within the same period that you paid the qualified expenses. For example, do not include the second-semester tuition paid in the previous December.
- Where possible, have the 529 withdrawal made payable directly to the beneficiary or the beneficiary’s college or K-12 school.
Please get in touch with us with any questions, and feel free to pass along this information to family or friends who may be interested.
