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  • Shelley Yates

College and Coronavirus: Optimizing 529 Plan Savings During a Pandemic

Learners of all ages, from kindergartners to graduate students, made a dramatic shift only a few months ago to virtual learning. As the new school year begins, many schools and universities plan to continue online courses or offer a hybrid model of in-person and virtual learning. As colleges shift from the “new normal” to the “next normal,” how can those funding or benefiting from 529 college savings plans adjust as well?

A 529 plan is a tax-advantaged educational savings account, means that funds grow tax-deferred and are withdrawn tax-free for qualified educational expenses, including tuition, books, and more. For students continuing to learn from home, typical educational expenses like room and board may be dramatically reduced for the foreseeable future. Additionally, some institutions also issued partial refunds for tuition and room and board for last semester, which may be applied to future expenses for students returning in the fall. These savings may be particularly useful as additional technology investments, such as a new computer and faster internet service, may be necessary with such a heavy focus on online learning. Upgrading technology is considered a qualified educational expense that 529 funds may be used for.

Last year, the SECURE Act expanded 529 qualified expenses to include up to $10,000 in student loan payments. This has led some to take out student loans for the current academic year, with plans to use the 529 to pay off that debt when the market performs better and 529 balances recover. Others are choosing to deposit the cost of a student’s private school tuition into the 529 plan and then withdraw it the same year to reap potential tax benefits. Still others are paying out of pocket for community college, so students can knock out required courses at home for less money than they would spend at the university they are enrolled in.

If you are weighing your 529 plan options in light of the upcoming school year, please do not hesitate to contact me. I’d be happy to help.


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