![]() ![]() You can use funds from a 529 account for a wide range of qualified education-related expenses. Here’s what you should keep in mind as you prepare to make withdrawals from a 529 college savings account. A mistake could be costly: You could get hit with a 10 percent penalty, plus you’ll have to pay interest on the earnings for any funds that you use for the wrong kinds of expenses. ![]() If you have children heading to college this fall and plan to tap 529 funds to pay expenses, it’s important to withdraw the money correctly. A 2021 survey found that even among those who do, 67 percent didn’t know about possible tax benefits and other features of 529 accounts. Only 40 percent of Americans recognize 529 plans as a way to save for college, according to a recent survey by financial services firm Edward D. And though money has continued to flow into these plans-assets stood at $431 billion in the first quarter of 2022, according to ISS Market Intelligence-many families still don’t fully understand how these accounts work. Withdrawing funds from a 529 isn’t as straightforward as it sounds. But they may not be as savvy about how best to take funds out. Otherwise, I don't think there is enough benefit to justify the time and expense involved.Parents who’ve been saving for their children’s college expenses for years know that putting money into a tax-advantaged 529 college savings account is easy, once the account has been set up. If you really want a rental property, then buy one without regard to what your kids do for college. You'd have no way to know that her younger sister would want to attend the same school, and even if she did, she also might not stay there. Even if you waited to buy it until the oldest one attended college, you have no idea how long she would stay at that school (she could transfer, drop out, or get expelled). The costs of buying and maintaining a rental property would not be worth it to me. This hypothetical situation I'm talking about is also 15 years away, so lots can change between now and then. I'm not sure if there would be a big difference between those two scenarios. The intent would actually be to save money on housing expenses by buying a property, instead of having the children rent apartments. There is the CO state income tax deduction on contributions though. You also have to remember that any money you are getting "paid" form the 529 is coming form you anyway. Are there any obvious problems with that?Įven if it's legal, it doesn't seem worth the additional expense of buying a rental property. ![]() So buy a property that your children live in, run the property as a rental, while taking some part of the 529 distribution that pays for tuition, fees, etc, to also pay a portion of the rent. The article even has a CPA on record getting quoted about how to do this correctly. Here is a fairly recent article describing something like this, but the scenario in this article is one where the child student lives at home, and the parents charge the child rent for his bedroom, and get some portion of that rent reimbursed by 529 distributions. Those costs are usually determined by the university itself, and as I understand it, are usually related to the cost of living on campus in a dorm. There is a certain amount that can be withdrawn from a 529 plan as a qualified distribution for student housing costs ("room and board" costs). Now, add in a potential to use distributions from a 529 plan to cover part of the rent. I don't think that experience is anything unusual. My intent would be to manage it like a rental property, charging them "market rent", accounting for expenses, depreciation, etc. They are about 3 school grades apart, so there could be something like a 7 year period where at least one of them would live in a rental property that I buy and rent to them. The scenario is my two daughters attending the same university. I'm wondering if anyone has done something like this, and what some potential legal issues would be. ![]()
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