NEW YORK (7/22/2014)--College is just around the corner for newly graduated high school seniors, which means the first tuition bills will appear at any moment.
To help guide families who are using 529 plans to pay for tuition, the College Savings Plans Network (CSPN) offers these guidelines (July 10):
Start early. Find out from your plan how long the funds transfer will take, whether the plan will send a check to you or directly to the college, and if there's anything else you should know as you start withdrawing funds. Once your beneficiary decides on a school, the earlier you start the process, the better.
Know before you go. Tuition due dates vary--some are not until after the course add/drop period, some are before the semester starts. Check with your school to find out its due date for tuition payment, and make sure you start withdrawing your funds well in advance.
Do your homework. Make sure to check with your plan to find out what it defines as qualified higher education expenses. This generally includes tuition and fees, room and board, and the cost of books, supplies, and equipment required for enrollment or attendance. If you are unsure if any specific item qualifies, ask your plan administrators.
Keep a record. For tax purposes, keep records and documentation of higher education expenses for any withdrawal you intend to treat as qualified.
Be prepared. Make sure your distributions do not exceed your higher education costs. If the distribution does not exceed the amount of the student's qualifying expenses, you do not have to report it as income on your tax return. But if the distribution exceeds those expenses, you must report the earnings on the excess as "other income" on your tax return.
For related information, read "Money 101: School Your College-Bound Child" and "The College Affordability and Transparency Website: Tools to Make Informed Choices" in the Home & Family Finance Resource Center