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What most parents don’t know about the 529 Plan!

Anyone can contribute

Grandparents, aunts, uncles, and friends often want to help out with college expenses, frequently in the form of savings bonds. Although bonds can be saved and used for school, 529 contributions are often an option as well. Parents own 529 accounts and set their child as the beneficiary, but for most plans, anyone can make a contribution to the account.

Reported as a parent asset on the FAFSA

The 529 is reported on the FAFSA as a parent asset and is only assessed at 5.64% which is another benefit since student assets are assessed at 20%. This lower assessment means your EFC will be lower if assets are assessed as the parents rather than the students.

The value of all your children’s 529 accounts must be reported on the FAFSA – not just the student filling out the FAFSA. Since 529 accounts are considered an asset of the parent, all the account values must be reported.

Pay at least $4,000 of tuition with non-529 funds if you are eligible to take the American Opportunity Tax Credit. 

Be aware that the AOTC does not consider room and board, books and electronics to be eligible expenses but they are for the 529….so make sure you use your funds correctly in order to take the tax credit – assuming you are within the income limits to take the credit.

529’s can be used to pay up to $10,000 a year towards private K-12 schools.

Check with your state to make sure they have conformed with the federal law…not all states have.

529 distributions must match the payments in the same tax year.

To avoid possible penalties, don’t withdraw the 529 money in December to pay in January for the spring tuition payment. 

Beware that 529 money must be used for qualified education expenses, or you may incur a 10% penalty in addition to paying tax on the earnings.

Extracurricular activity fees, health insurance and transportation/travel costs are not considered qualifying expenses.

If you receive a scholarship, you can get your 529 money returned to you in the same amount.

The 10% penalty will be waived however the earnings portion will be taxed.

529 money can be used for room and board on and off campus.

Even if your student lives off campus, she can spend the 529 dollars tax-free for her housing costs, up to the school’s allowance for room and board. (You can find the allowance amount on the school’s website under the cost of attendance or by contacting the financial aid office.) Off-campus room and board only counts if the student is enrolled at least half-time.

With the passing of the SECURE act in 2019, up to $10,000 per beneficiary of 529 money can now be used to pay student loans.

To learn more, check out this article from US News about paying student loans with the 529 plan.

Billie Jo Weis

After receiving her BA in Accounting from San Jose State University and quickly attaining her CPA license, Billie Jo gained over 20 years of experience in accounting and finance at a variety of companies including Symantec Corp, Thomas Weisel Partners (a San Francisco investment firm), several Silicon Valley startups and at a Certified Public Accounting firm serving high net worth individuals with their taxes.

She has assisted hundreds of college-bound families with strategies on how to pay the least amount for college and she is also the Head of the Appeals Team.

Billie Jo Weis is a mother of three high school boys. With a passion for family success, she has devoted the past 15 years to her boys' athletic, social and academic lives, including volunteer work at her children’s schools with such programs as Junior Achievement.

Billie Jo is driven and passionate about helping families with financial strategies on how to find the most cost-efficient options to pay for college. With three teenagers in high school, Billie Jo knows first-hand the challenges and concerns of preparing for the cost of college.

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