Question: My son is a freshman in college, and this is our first time using 529 money for his college bills. Do we need to withdraw money from his 529 for his 2018 tuition bills and other eligible expenses by December 31, or do we have a few months afterward to withdraw the money?
Answer: You have to withdraw the money for 2018 expenses by December 31, 2018. “The expense and the distribution must be in the same year,” says Mark Kantrowitz, of Savingforcollege.com.
This is a good time to consider all of the eligible 529 expenses you’ve paid during the year, so you’ll have time to make the withdrawals before December 31. You can withdraw 529 money tax-free for tuition, fees, and required books and supplies, as well as for room and board. Students who are enrolled at least half-time can even use 529 money tax-free to pay rent for an off-campus apartment (up to the school’s allowance for room and board, which you can find at the school’s website under the cost of attendance or by contacting the financial aid office). You can also withdraw money tax-free from the 529 if you bought a computer for your son this year.
Keep in mind that you can’t withdraw money tax-free from the 529 now for next year’s expenses unless you’re billed for them this year. This timing is different from the rules for the American Opportunity Credit. You can prepay for expenses that will occur during the first three months of the year and still take the credit. “There is no similar language for 529 plans,” says Kantrowitz. (For more information about the American Opportunity Credit, see IRS Publication 970.)
If you’re still contributing to a 529, it’s also a good time to find out whether you need to make contributions by the end of the year in order to deduct your contribution on your state income taxes for 2018. Most states set a December 31 deadline, but Georgia, Mississippi, Oklahoma, Oregon, South Carolina and Wisconsin give you until April 15, 2019 (and Iowa gives you until May 1, 2019) to make tax-deductible contributions for 2018. See Savingforcollege.com's list of states with later deadlines.
As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.
Pharmacy Disruptions Are Ongoing In Aftermath of UnitedHealth's Cyberattack
UnitedHealth says it is working to restore operations after Change Healthcare breach, which also affected military clinics and hospitals worldwide.
By Joey Solitro Published
Stock Market Today: Stocks Close Mixed With Inflation Data in Focus
Amazon closed lower on its first day as a Dow Jones stock.
By Karee Venema Published
Are Student Loans Being Forgiven or Not?
Student Loans The House and Senate voted to repeal President Biden’s student loan forgiveness plan, but does it even matter?
By Katelyn Washington Last updated
Are Scholarships Tax-Free?
Education Scholarships are generally tax-free if certain IRS and other requirements are met.
By Kelley R. Taylor Published
Student Loan Forgiveness Blocked For Now Due to Court Rulings
Biden's student loan debt forgiveness program is on hold until the U.S. Supreme Court weighs in.
By Kelley R. Taylor Published
529 Plan Contribution Deadlines
529 Plans Many states have year-end deadlines for making 529 college savings plan contributions.
By Kelley R. Taylor Last updated
3 Key Ways You Can Help a Child or Grandchild Pay for College
college Options such as 529 plans, education savings accounts and tax-free gifts can ensure you don’t carry a child’s student loan debt into your golden years.
By Tony Drake, CFP®, Investment Advisor Representative Published
Borrowers Over 50 With Student Loan Debt
Paying for College Millions of borrowers 50 and older are struggling to repay loans for themselves and their children, some delaying retirement. There’s a trick, though, to help with repayment.
By Elaine Silvestrini Published
How to Spend $1,000: Find Cheap (or Free) Online Courses to Build Career Skills
Smart Buying There's a huge array of skill-building online courses that can level up your career for under $1,000.
By Kim Clark Published
PODCAST: Tax Breaks for College Finance with Kalman Chany
Paying for College Paying for (ever-pricier) college is a challenge that this consultant meets head on with highly specific guidance.
By David Muhlbaum Published