Questions and Answers on 529 Accounts |

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Here are some questions and answers about paying for college with a 529 account:

My daughter may have to borrow for college. Does she have to spend all her 529 money before taking out student loans?

Families often spend 529 funds first so they can wait as long as possible to get into debt. But it may be better to borrow as you go rather than waiting for the 529 to run out, advisers say.

“I suggest spreading it (the 529 balance) over four years,” said Mark S. Kelly, financial planner in Raleigh, North Carolina.

This is because there are limits on the amount of low interest federal student loans that can be borrowed each year (and in total). Once you have passed the borrowing deadline for a given year, you cannot use these loans retroactively. If it turns out that you don’t have enough money left available to borrow, you may need Federal Plus Loans, which carry a higher interest rate, or Private Student Loans, which lack important protections for students. borrowers.

Under a law passed last year, up to $ 10,000 from a 529 account can be used to pay off the recipient’s student loans. So if you end up with some leftover money in a 529, you can use the money for the student loan balance.

Should I spend the money I withdraw from the 529 right away?

Typically, withdrawals from a 529 must be made in the same calendar year that the expense is paid. Families should be especially careful with spring tuition, counselors say, as college years span two calendar years. The spring term often begins in January, but colleges can send the bill in December. If you are withdrawing the money in December, be sure to pay the bill by January 1. Likewise, if you wait to pay the bill in January, you must also withdraw the money after January 1.

“If the timing is wrong, you may have to pay tax because this is an ineligible withdrawal,” Fidelity said.

Do 529 plans have withdrawal deadlines?

No. You can keep funds in a 529 plan indefinitely. If the account beneficiary does not need all the money for college – perhaps because of scholarships – the money can be used to pay for graduate studies. Or the beneficiary can be changed to a sibling or other family member so that the funds can be used to cover their school fees.

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