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Filter By Categories cost-of-college financial-aid-and-scholarships student-loans salary-and-career. What is a Plan? In this article, the plan refers to the college savings plan. If you plan to use your plan to pay for room and board, you should meet the following criteria: Must be enrolled at least half-time verify the number of credit hours with the university Must be enrolled at an eligible institution Enrolled in a degree or certificate program, no continuing education classes Paying for Room and Board with a Plan If a student meets the eligibility criteria, the account owner can use the plan to pay for both on-campus and off-campus housing expenses.
Paying for On-campus Housing If the student is living on-campus and using a meal plan, paying for room and board with a plan is easy as most plans have an option to send a check directly to the school. Paying for Off-campus Housing You can usually pay for off-campus living expenses by paying expenses out-of-pocket and reimbursing yourself with funds from the plan.
Avoid Exceeding Expenses in Cost of Attendance COA One of the biggest misconceptions about plans and off-campus housing is that there are no restrictions on the rent, utilities, groceries, or other expenses that a student can pay with their plan.
Using a Plan to Pay Room and Board While you absolutely can use college savings plans to pay for room and board expenses, taking a few precautions will make it easier for you come tax time. Alexandria Williams. Alex is an educator and developer in Southern California. An alumna of the University of Michigan and the University of Oxford, she earned seven academic scholarships to fund her education and enjoys helping international and underrepresented students do the same.
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Sign Up. Read More:. Sign up for updates. Popular Stories. Jan 14, An exception to this rule may be if your college charges a travel or transportation cost as part of a comprehensive tuition fee, or if that fee is identified as being required for enrollment or attendance.
Your college may likely require students to have health insurance. Again, there is an exception to this rule. If health insurance is charged by your institution as part of a comprehensive tuition fee or the fee is required to your enrollment or attendance , the cost of your health insurance may count as a qualified plan expense. Although these costs are required for admission, they are not required for enrollment or attendance.
If plan funds are used to pay for any pre-enrollment fees, it will be considered a non-qualified distribution. If you have leftover money in your college savings plan after you graduate, you can use that money to pay off all or part of your student loan debt. The maximum amount that can be withdrawn tax-free from a plan is the total amount of higher education expenses paid during the year, minus any amount used to generate other federal tax benefits.
However, these federal education tax credits are only available for families who meet income requirements. Money in a plan can only be withdrawn tax-free when used for qualified expenses that were not covered by payments that generated the AOTC.
The credit does phase out at higher incomes, so some families may get a smaller credit or not be eligible at all. An accountant or tax advisor may be able to provide more guidance on your specific situation. In order for an expense to be qualified, you must withdraw money from the plan in the year the expense was incurred. The primary benefit of using a plan for college saving is that the accounts offer tax advantages.
The rules surrounding these tax benefits can be complex and vary based on where you live. Similar to a k plans are investment accounts, and the contributions you make are invested in a portfolio of mutual funds or other securities that may generate income. But, unlike a k , contributions to a plan are made with after-tax money. State-level income tax benefits can vary. If you open a plan for someone who decides not to go to college, there are a few options for using the money.
One is to simply take the money out of the plan and to use it for non-educational expenses. The account owner can name a new beneficiary and use the money to pay for their education. For example, a parent who has two children could change the account beneficiary to their other child and use the money for their benefit. Most plans allow beneficiary changes at any time by completing a form found on their website.
Trade schools and vocational schools can also qualify. Other options include using money in the plan to pay off student loans and saving the money to go toward graduate school or other further education. You can withdraw funds from your 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 plan also grows tax-deferred. Please consider sharing this post. Recent Blog Posts. Your Recovery Rebate Credit may be different than expected April 9, Comments 1.
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