Time Limitations on 529 Plan Withdrawal
A 529 plan is an investment vehicle that allows parents to save for a child's college education. Parents may be allowed to deduct contributions from their federal income taxes, and the money grows on a tax-deferred basis. Withdraws are made on a tax-free basis as long as the money is used to pay for qualified education expenses.
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Considerations
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Account owners have the freedom to decide when to withdraw funds and in what amount, according to the Axa Equitable website. However, for maximum benefit, it is best to coordinate withdrawals with the use of education tax credits to avoid reducing the availability of qualified educational expenses.
Wait as Long as Possible
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It is also better to wait as long as possible before withdrawing any funds. By waiting until the money is truly needed, there is more time for the fund to accumulate interest, meaning there will be more money to pay for educational expenses.
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Warning
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If you withdraw the money to pay for non-educational expenses such as buying your child a new car when she turns 16 or to pay for medical expenses, the money will lose its nonqualified status. This means that you will pay a 10 percent penalty, and you'll also have to pay taxes on the amount you withdraw.
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References
- Photo Credit Education Sign image by sonya etchison from Fotolia.com
