“Otherwise, you should wait until you pay the bill to take the distribution.” “If you are paying for the spring 2022 semester, you can take the distribution in December 2021 if you pay the spring 2022 bill in December 2021,” says financial aid expert Mark Kantrowitz. Time the Withdrawalīefore withdrawing funds from a 529 plan, it’s important to make sure you’re withdrawing the money at the right time. No matter how much you withdraw, you have to use the money for qualified educational expenses to avoid paying income tax and a 10% penalty. If you’re using 529 plan funds to pay student loan debt, there is a lifetime withdrawal limit of $10,000. An annual withdrawal limit of $10,000 is applied to 529 plans for K-12 tuition expenses. ![]() There is no annual limit on how much you can withdraw for college expenses, but there are limits on certain expenses. Determine the Amount of Qualified Expenses When you make a withdrawal, you may also have to choose whether you’re using the money for higher education costs, like college or trade school, or if you’re using it for K-12 expenses, like tuition for a private or parochial school. If you withdraw funds for an unqualified expense, you’ll incur a 10% penalty and then have to report those funds as income on your state and federal taxes. ![]() When withdrawing from a 529 plan, you’ll have to disclose whether you’re using the funds for qualified educational expenses or unqualified expenses.
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