If your student is headed off to college or another higher-education institution this fall, you have a lot to do to get ready. At the top of that list is making sure you are all set to pay the bills when they come due.
As a 529 account owner, you are already ahead of the game in terms of having savings to pay those bills. But there are some steps you can take to make sure you are on track to start making withdrawals.
Establish banking instructions
If you haven't already done this, consider setting up bank information for your 529 account so that you can make online withdrawals. It is simple and only takes a few minutes.
Log on to your 529 account and follow these steps:
- From My Accounts, choose the appropriate beneficiary's account.
- From the left-hand navigation, select View Profile & Documents.
- From the left-hand navigation, choose Bank Information.
- Select Add a New Bank and follow the instructions.
Check your asset allocation
Once you are ready to start making withdrawals, you may want to focus on preserving principal so that you have the savings you need to pay the bills. If you are invested in an age-based option, your savings have been automatically shifted to a more conservative asset allocation as your child has moved closer to college age.
However, if you are invested in one or more of your plan's individual portfolios, you may want to check your current asset mix. Many investors with college-age beneficiaries choose more conservative investments, such as bonds and short-term reserves, rather than stocks.
If you have not reviewed your asset allocation for a few years or are not sure what mix is best for you, we have a tool that can help.
Determine the "right" withdrawal amount
Withdrawals from your 529 plan account are tax-free as long as they are used to pay qualified higher-education expenses. These expenses include tuition, room and board, fees, books, supplies, and computers and related equipment.
Be careful not to withdraw too much--any amount over what you use to pay qualified higher-education expenses will need to be reported as taxable income by either you or the beneficiary, depending on who receives the withdrawal.
The earnings portion of any nonqualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. The availability of tax or other benefits may be contingent on meeting other requirements.
Once you are ready to start paying your higher-education bills, you can make withdrawals from your account online, by mail or by phone.
While preparing to send your student off to college may be overwhelming, we can help make the payment process as simple as possible.