Tips to help your 529 plan pay off after years of saving

Because money doesn’t come with instructions.®

Article published: July 02, 2024

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My son, and only child, is starting college next year, and my husband and I have been saving for years in a 529 plan to help make his college experience all that it can be. His freshman orientation starts at the end of August, so it’s go time. Is withdrawing from the 529 plan to pay for tuition simply withdrawing from the account and sending it to the college? If I don’t get it right, it could mess things up for him, and for my husband and me, because we want those withdrawals to be tax-free.


First, congratulations. It’s the start of an exciting new chapter for your son but also for you and your husband, especially as he is your only child. Sending your child off to college can be bittersweet (we’ve been there, too!). However, there are financial and lifestyle considerations beyond college tuition payments that you and your husband want to begin considering right now as soon-to-be “empty nesters.” Here are some strategies to help you get started.

Now, on to your question about steps to follow when withdrawing from your 529 plan for the first time. There are a number of items, so we will give you some of the key ones.


Make withdrawals and payments in the same year

Like you said, you want to ensure your 529 withdrawals are tax-free as that is one of the major advantages of a 529 account. To help ensure the 529 distribution is tax-free, it’s a best practice that you make your tuition payment and take the distribution in the same calendar year. We recommend that you work with a qualified tax professional to get the timing right.

It’s easy to make a 529 withdrawal and tuition payment in the same year for the fall/winter semester because payment is typically due in August or September. The spring semester is a different story because the payment is usually due shortly after New Year’s. That means the withdrawal and the payment should happen at least in December, smack in the middle of holiday season, so plan for it!

If you need to use your cash reserves to make a payment on time in early January, then you can withdraw from your 529 plan later in January and reimburse yourself. Just remember to save the documentation of the entire transaction for Uncle Sam.

Whatever you do, pay the tuition on time; otherwise, your child could be dropped from required classes. Depending on where he is in his college years, this could result in his not graduating on time and needing an extra semester.


Ways to make a payment

Let’s talk about another critical component of using a 529: ways to make the payment.

Before paying the tuition, your plan’s administrator may have an online portal where you can usually select how you want to make a distribution.

  1. You may choose to deposit the distribution electronically to your bank account. If so, talk with your 529 plan administrator to help ensure your bank account is linked to your 529 plan.
  2. You also may be able to make a payment toward tuition directly from the 529 account to the college.
  3. When the payment is made using either of these options (and there are other options), you should consider making the request for the withdrawal at least two weeks or more before the tuition deadline to allow for enough time for it to be posted.
  4. A college may allow payment to be made through their own online portal. If the college allows for a credit card payment, be forewarned that there can be a pretty hefty service charge added to the tuition cost. See if there is an eCheck option, which can be free of charge, to avoid this service fee.
  5. You can first make the payment from your cash reserves and then take a 529 distribution later in that same calendar year to reimburse yourself – just remember to document the transactions.


529s are good for off-campus rent too

Your son may be living on campus in his freshman year, but come sophomore year, he and his buddies may want to rent an apartment near campus. That’s a very popular option these days and guess what? Your 529 plan can help pay for that, too. Rents can be steep in college towns, but your 529 plan can pay up to the maximum fees charged by the school for on-campus housing.

Just remember that the 529 withdrawals and payments for rent need to occur in the same calendar year. Because the academic year flows into the next year, you can’t withdraw the full 12 months’ rent at once. Again, document all qualified expense payments using your 529 distributions.


Final notes

Some final notes about using your 529 plan. Your student must be enrolled in the college or university for 529 distributions to be used to pay qualified college expenses. That means that they should have a student ID as documentation. Expenses that occur before this, such as college application fees and accepted student trips, don’t meet this criterion. Additionally, student health care (which may appear as part of your tuition bill) is not considered a qualified expense, nor are flights or travel to get to college.


We hope you’ve found this information helpful

Remember that any financial guidance must be adapted to your unique circumstances, so consult your financial planner. In the meantime, keep those questions coming!




Neither Edelman Financial Engines nor its affiliates offer tax or legal advice. Interested parties are strongly encouraged to seek advice from your qualified tax and/or legal professionals to help determine the best options for your particular circumstances.