Question: Can you use a 529 plan to pay all college expenses? room, board, tuition and books? And what are the tax advantages?
By Ric Edelman
Q: Can you use a 529 plan to pay all college expenses – room, board, tuition and books? And what are the tax advantages?
Ric: Yes. Money in a 529 college savings plan can be withdrawn tax free when used for all required college expenses and can be used at any college, public or private, in or out of state. This is why we regard 529 plans as the best way to save for college.
But the benefit is of value only if the account grows. Therefore, 529 plans are best when you can leave the money invested for three or more years. If you’re thinking of investing for a child who’s a senior in high school, consider leaving the money untouched until her junior year of college.
Note: Withdrawals not used for college are subject to income taxes and a 10% IRS penalty. If the child does not need the money, you can apply the funds to others in the family.
There are many other details about investing for college; read all about them in Chapter 53 of The Truth About Money.