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Can You Use 529 Funds To Buy A Laptop

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Roll 529 Savings Into An Able Account To Pay For Disability Expenses

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Achieving a Better Life Experience accounts were established in 2014 to allow people with disabilities and their families to save money for disability-related expenses. Earnings in ABLE accounts grow on a tax-deferred basis and can be withdrawn tax-free for eligible expenses such as housing, transportation and assistive technology. Like traditional 529 accounts, ABLE accounts can also be used to cover education expenses. Tax-advantaged treatment applies to savings used for qualified disability expenses. State tax treatment varies. If withdrawals are used for purposes other than qualified disability expenses, the earnings will be subject to a 10% federal tax penalty in addition to federal and, if applicable, state income tax.

But sometimes parents who have started traditional 529 accounts for their children realize only later, after a childs disability diagnosis that they would really benefit from an ABLE account. Fortunately, the Tax Cut and Jobs Act offers them some relief: 529 account holders can roll their funds into ABLE accounts up to the annual contribution limit of $15,000 until January 1, 2026. A 529 account can be rolled into an ABLE account for the same beneficiary or for a different beneficiary within the same family. For instance, a family may roll money from a 529 account benefiting one sibling into an ABLE account benefiting another sibling.

What Are The Tax Advantages Of A My529 Account

  • Earnings accumulate deferred from federal and Utah state income taxes. Withdrawals are tax-free when used to pay for qualified higher education expenses, including K-12 tuition expenses, of your beneficiary.
  • A Utah taxpayer who is an account owner, including a Utah trust, may take a Utah state income tax credit on contributions up to certain limits if the beneficiary was younger than age 19 when established as the beneficiary on the account.
  • Utah corporations can claim a state income tax deduction for contributions up to certain limits.
  • If the age 19 requirement is met, the account owner is eligible for the Utah state income tax credit or deduction for the life of the account each year a contribution is made. Learn more.

Can 529 Plan Savings Be Used To Buy A Computer Software A Car

When it comes to tax-advantaged investment funds, the rules about withdrawing the money can leave people confused.

In a recent column, I debunked five myths of 529 college-savings plans . But that myth-busting led to some follow-up questions from readers.

Can you use 529 funds to buy a computer? What about software?

Previously, you could use money from a 529 plan to buy a computer only if it was required by the college for attendance. That is no longer the case. Savings can indeed be used to buy a computer or pay for internet access as a qualified higher-education expense. An iPad used for college would also qualify, as would any related peripheral equipment, such as a printer. But software designed for sports, games or hobbies is excluded, unless it is predominantly used for educational purposes, according to the IRS.

Can 529 funds be used to buy a car to get to and from college?

Unfortunately not, says Gregg Wind, a certified public accountant who is a partner with Kallman, Thompson & Logan in Los Angeles. A car would be considered a non-qualified use of the funds. Transportation of any type is generally not qualified, he said.

My daughter received a full ride to Towson University in Maryland, so I have some extra money in my 529 plan that I would like to withdraw. She has just finished her junior year. What are the rules for withdrawing the funds?

Let me unpack these questions.

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Rules Surrounding 529 Plans

529 plans are educational IRAs that are administered at the state level. 529 plans are considered tax-advantaged accounts. Savers can invest in the 529 plan, and the gains from the investments are free of capital gains, so long as the funds are used to pay for qualified expenses .

Many states offer tax deductions or credits when parents or grandparents fund 529 accounts. You can see a full list of the 529 plan deductions by state here. Its important to note that you wont get a Federal deduction or credit for funding a 529 plan.

Its also important to note that your eligibility for a deduction may be contingent on choosing the 529 plan administered by the state where you live. If your state doesnt offer a deduction or credit, I recommend check out our list of the best places to open a 529 plan.

529 plans dont have firm limits on funding, but the gift tax limit in 2018 is $15,000. That means that you and a spouse could each contribute $15,000 to a 529 plan without triggering any extra taxes. You can also superfund a 529 plan by contributing up to $75,000 at once.

Can I Use The Proceeds Of A 529 Plan For Homeschooling

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Late in 2017, it looked like the right to use 529 proceeds for private elementary and secondary education would be extended universally to homeschool families. However, that portion of the law was overturned, so homeschoolers cannot universally use the 529 for homeschool expenses. The law so narrowly applies to primary and secondary tuition expenses, it is difficult to see how homeschool families may practically be able to use the funds.

That said, a few states universally consider homeschoolers a form of private schooling. The best article I found on the topic listed Alaska, California, Illinois, Indiana, Kansas, Kentucky, Nebraska, and Texas as states where homeschools are universally considered private schools. That means parents in those states can likely use 529 plans for select elementary or secondary school expenses that meet the tuition criteria. By contrast, parents in those states can easily use the Coverdell Education Savings Account for qualified education expenses which include things like curriculum, textbooks, supplies, and computers.

If you are a homeschool parent in any state , I recommend contacting a lawyer before using any distributions from a qualified education savings account.

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Exceeding Your Cost Of Attendance

Every school estimates attendance costs. These costs provide an idea of what you can expect to pay when you attend a specific school.

How much money you can withdraw from your 529 to pay for living costs such as housing and food is based on the cost of attendance at your chosen school. Therefore, you should be careful not to exceed this amount.

Its easy to stay within estimated costs of attendance when you live on campus and buy a meal plan from the cafeteria. But when you live off campus and buy your own food, you must keep the costs within the given cost of attendance at the school. In other words, you cant pay any more to live and eat off campus than you would to live in the dorms and eat in the dining hall, per the schools calculations.

If you have questions about your own schools limit on housing and food costs, ask the financial aid office for the cost of attendance so you have some guidance.

What Happens If The Beneficiary Doesn’t Want To Continue His Or Her Education

If that’s the case, you have a couple of options. You can stay invested in case he or she decides to attend school later, as there’s no age limit on using the money. Or you can change the beneficiary to an eligible family member.

You can also withdraw the money for other uses. However, a 10% penalty tax on earnings may apply if you withdraw the money to pay for nonqualified expenses.

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Ready To Withdraw Funds

When it comes time to use your 529 plan for qualified expenses, withdrawing funds is simple. Money from your Bright Start account can be paid directly to you as the account owner, directly to the beneficiary, to the account owners bank account, or to an eligible educational institution.

An account owner or custodian may request a withdrawal online or by downloading and submitting the Withdrawal Request Form.

Be sure to plan ahead when requesting a withdrawal. Generally, if a request is received in good order on a business day prior to the close of the markets , the investments will be sold at that days closing prices, the funds will be received by the Plan the following business day, and a check mailed. Please plan ahead and allow 7 10 days for mail time. For withdrawals payable to the account owners bank account, please allow several business days for your bank to process the payment and credit your account.

Please Note: the earnings portion of a withdrawal for nonqualified expenses is subject to federal and state income tax, an IRS 10% penalty tax, and may be subject to an Illinois recapture tax of previously deducted contributions.

Withdraw Funds at Your Convenience with Bright Start

Log in to your online account and request a withdrawal.

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How Do You Withdraw Your 529 Plan Funds

Depending on your states plan, there are typically several ways to withdraw your 529 plan money. For example, Scholarshare allows you to request a withdrawal online, by mailing in a form via snail mail, or by calling their call center.

You can have the funds sent to the participant, the beneficiary, the school directly, or a third-party. Many 529 plans, including Scholarshare, allow for ETF transfers as well, which can speed up the process dramatically.

When you take a withdraw, you are not required to provide any proof of whether the money is being used for qualified or non-qualified expenses. However, you are required to declare it to the IRS when you file your taxes, and so its important to maintain accurate records should you need them.

How Much Can I Invest

529 account contribution limits are generally highfrom $200,000 to $300,000 or more, depending on the state. For the College Savings Iowa 529 Plan, you can contribute up to $420,000 on behalf of one beneficiary. This amount includes all Iowa-sponsored 529 savings accounts held for the same beneficiary.

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Next Steps To Consider

529 Participants may take up to $10,000 in distributions tax free per beneficiary for tuition expenses incurred with the enrollment or attendance of the designated beneficiary at a public, private, or religious elementary or secondary school per taxable year. The money may come from multiple 529 accounts however, the $10,000 amount will be aggregated on a per beneficiary basis. Any distributions in excess of $10,000 per beneficiary may be subject to income taxes and a federal penalty tax.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917

Other Ways To Pay For College Expenses

You Can Now Use A 529 Plan To Repay Student Loans

A 529 plan can be a great way to help pay for college expenses, but its important to be aware of the limits on such spending so you dont end up being penalized.

That said, a 529 plan may not cover everything. If you find you still have a college funding gap after using your 529 or other savings plans, you can make use of federal loans, make money through a work study program and look for scholarships and grants. You can also apply for private student loans, although you should be aware that these loans are often not as flexible and do not offer the same benefits as federal loans.

Alternatively, if you find you have an excess of 529 funds when you are done paying for college expenses, here are ways you can spend that leftover money without incurring penalties.

Rebecca Stropoli contributed to this report.

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What Happens If You Use A 529 Plan For Non

You can withdraw funds from your 529 plan at any time, for any reason, but the earnings portion of a non-qualified distribution may be subject to taxes and a penalty,

Money in a 529 plan also grows tax-deferred. You dont have to pay federal income tax or capital gains taxes if your investments gain value in your 529 plan. If you spend the money on a qualified higher education expense, your withdrawal is tax-free.

But dont forget: if you withdraw money for non-qualified expenses, you will incur income taxes on the earnings portion of the distribution. You also have to pay an additional 10% penalty on those earnings.

States can impose additional penalties.

For example, California adds a 2.5% tax penalty to the 10% federal tax penalty. States that offer state income tax deductions for 529 plan contributions may also make you pay the taxes you would have owed if you didnt receive those deductions.

However, here are exceptions to the penalty rules. For example, you may be able to take money from the account for non-qualified expenses if youre attending a military academy, earn a qualifying scholarship or receive educational tax credits.

Its important to understand the rules and your options. For more information on exceptions to the penalty rules, consult our guide.

Keep Your Costs Separate

When using your 529 money to pay for college costs, keep a record of all your purchases. When tax season arrives, youll need receipts to back up your claims.

Try to avoid putting 529 qualified expenses on the same transaction with ineligible costs. For example, if youre buying groceries for the week, dont toss shampoo and soap on the same transaction as your food purchases.

While it may seem awkward to divide your purchases and complete two transactions, it could make record-keeping easier. And you may be less likely to draw the attention of the IRS when you prepare your taxes.

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How Much Should I Withdraw For Qualified Expenses

When calculating how much you need, make sure you subtract any scholarship or grant money from the amount you’re planning to withdraw.

Also, consider whether you’re planning to claim any federal tax credits, like the American Opportunity Tax Credit or Lifetime Learning Credit. If you claim a credit, it will reduce the amount of your expenses that are considered qualified.

Note: Any excess amount you withdraw is considered a nonqualified withdrawal.

How Much Can A Grandparent Contribute To A 529

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Beginning in 2018, each parent and grandparent will be able to contribute up to $15,000 annually per child and exclude these contributions from gift taxes. For example, a set of grandparents who are married, can make gifts of $30,000 to their grandchilds 529 plan each year with no estate or gift tax consequences.

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College And K12 Tuition

Youre probably familiar with using 529 funds to pay for college tuition. But did you know the account can be used to pay K12 tuition at an elementary or secondary, religious or public institution? However, only $10,000 per year may be withdrawn for K12 expenses. If youre playing the long game and allowing funds to grow for college, thats a good choice too. The price of college today has doubled since the 1980s. The funds from a 529 Account can be used to pay tuition at any eligible educational institution nationwide, including community colleges or vocational schools. To find out whether a potential school qualifies, enter the Federal School Code on the U.S. Department of Education website. Tuition only covers enrollment in college courses. If your child is going away for college, they will need a place to live and eat. Living expenses can also be paid with a 529 plan.

Singletary: Can 529 Plan Funds Be Used To Buy A Computer

When it comes to tax-advantaged investment funds, the rules about withdrawing the money can leave people confused.

In a recent column, I debunked five myths of 529 college-savings plans. But that myth-busting led to some follow-up questions from readers.

Can you use 529 funds to buy a computer? What about software?

Previously, you could use money from a 529 plan to buy a computer only if it was required by the college for attendance. That is no longer the case. Savings can indeed be used to buy a computer or pay for internet access as a qualified higher-education expense. An iPad used for college would also qualify, as would any related peripheral equipment, such as a printer. But software designed for sports, games or hobbies is excluded, unless it is predominantly used for educational purposes, according to the IRS.

Can 529 funds be used to buy a car to get to and from college?

Unfortunately not, said Gregg Wind, a certified public accountant who is a partner with Kallman, Thompson & Logan in Los Angeles. A car would be considered a non-qualified use of the funds. Transportation of any type is generally not qualified, he said.

My daughter received a full ride to Towson University in Maryland, so I have some extra money in my 529 plan that I would like to withdraw. She has just finished her junior year. What are the rules for withdrawing the funds?

Let me unpack these questions.

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