As taxpayers work to fund college for their children, 529 plans can provide great benefits. These types of accounts are very easy to contribute too. However, parents who are not prepared may find it hard to spend the money that they have invested without being penalized. In this article, we detail four common mistakes that people make with 529 plans.
First, some taxpayers attempt to use funds from a 529 plan to pay for expenses that are already claimed via tax credits such as the Lifetime Learning Credit or American Opportunity Credit. This is not allowed. In the same way, they cannot use these credits and deductions on expenses paid for from 529 plans.
Second, students should avoid using any distributions from grandparents’ accounts to pay tuition expenses. These distributions are viewed as giving non-taxed income to the student. This income could end up changing financial aid calculations, causing the student … Read More