It’s graduation season, and for many parents that means it’s almost time to start shelling out for college tuition. For those well-prepared parents with established 529 plans in place, the time has come to tap into that money pool. Of course, when it comes to tax-advantaged savings, trust that the IRS is keeping close watch, so it’s important to avoid making any rookie mistakes. It’s also important to keep saving as you move forward. Here are some Tips for Parents of College to help you stay on track and maximize your savings:
- Withdraw only for qualified education expenses—Be very careful that you only make withdrawals for eligible expenses, including tuition, books and supplies, certain room and board expenses, and special equipment required by the school (e.g., an easel for an art student). When in doubt, err on the side of caution and check current 529 guidelines on the IRS website. Just as it’s important to follow 529 plan rules carefully, it’s equally important to be intentional in your workplace check out Tips for Building a Company Culture That Supports Remote Workers to create guidelines that keep your team on track and engaged.
- Have your college student collect receipts and billing statements. Saving all source documents now may save you a few headaches later. All relevant documentation offers proof that 529 funds were used for qualified expenses. As the owner of the 529, you are responsible for any tax reporting, so you’ll need all supporting paperwork. This is one of the essential Tips for Parents of College to help stay organized and avoid tax issues.
- Continue to make contributions and monitor investments. Just because you begin withdrawing from a 529 college savings plan, it doesn’t mean you should stop contributing. It also doesn’t mean you should stop monitoring your investment allocations. It’s likely that now that your child is older, investments have become more conservative—but if not, you may want to review and make changes as needed. This is another key point in our Tips for Parents of College to ensure your savings strategy stays on track.
If you are a first-time 529’er, these tips should help you avoid potential costly mistakes. Please reach out to Steven M. Ellard, CPA if you have any questions. Here’s to a fantastic graduation season!