Did you know that you can use 529 funds to pay for K-12 expenses? Those investing in a 529 can use up to $20,000 per year on eligible costs in connection with enrollment or attendance at any elementary or secondary (K-12) public, private, or religious school. These include expenses like tuition, standardized test fees, tutoring, course materials like textbooks, and much more.
Spending the funds you had earmarked for college now for K-12 expenses can be a difficult choice, given that the longer funds have to grow, the greater the return. On the other hand, your student may have more immediate needs. And for a student to be happy and successful after high school, it is important to consider their happiness and success before it as well.
It’s a highly personal choice.
It’s one that I myself have made. My son was not happy in his public middle school. His mother and I started looking for other options. We had the opportunity to send him to a school we thought he would love, and the school was willing to enroll him. We had saved in a 529 account that we had intended to use for college, but we were confronted with what we believed to be a necessity.
As such, we were lucky to have saved money in his 529 account to be able to use. For us, the choice was not difficult. And it has proved to be the right choice for him.
Here’s how we did it.
We accessed our U.Fund account online and used the directions outlined in MEFA’s article to simply direct transfer the necessary funds to our son’s school account. Since we signed up for a monthly payment plan with the school, we withdrew funds from our 529 plan monthly. The transfer of money from our 529 account to our son’s school account only took a day or two each time.
There was nothing to it.
If you have online access or a mobile app connected to your 529 account, you are likely able to also initiate your distribution and receive the funds in a matter of days. Whether or not you send the funds to the school or to yourself may depend upon what you plan to use the funds for, or you may just have a preference. If you need assistance, you can contact your 529 fund manager to arrange the disbursement.
Just be sure to keep a few things in mind:
- Be mindful of the withdrawal limit, which is $20,000 per year. You won’t be prevented from taking funds out of your account at any limit, so it may be easy to withdraw more than the $20,000 total. If this were to happen, you would be subject to a 10% penalty on the earnings of any amount taken over the limit. Those earnings would also be taxed at your income tax rate.
- Be aware of state income tax policies. The $20,000 withdrawal limit for K-12 expenses is at the federal level. That is, you won’t pay federal taxes on your 529 earnings when used for these eligible expenses. The state that you live in may have its own rules for state taxes. Many states choose to mirror the federal policy and make K-12 expenses eligible expenses, but some have not.
- Keep records. Should you get audited, or for some other reason you need to demonstrate how you used your withdrawals, be sure your recordkeeping makes it simple and easy to outline how the funds were used.
- Be sure of the expenses that are deemed qualified. Consult the list before making any withdrawal decisions.
Should you have any questions about withdrawing your 529 funds, or about 529s in general, give us a call here at MEFA. We can be reached at (800) 449-MEFA (6332) and [email protected].
