Ready to pay that tuition bill? Avoid these 529 plan mistakes.

If you have a child heading off to college this fall, chances are you’re doing the same thing as other parents across the country: Paying the bill.

But withdrawing money from a 529 plan account isn’t always as simple as paying your electric bill. Avoid these traps that could delay your payments or increase your taxes.

Trap 1: Waiting until the last minute to request a withdrawal


In most cases, it’s easy to request a withdrawal. You can call your plan administrator, make a request online, or submit a withdrawal request form. The plan can send withdrawals by check to the account owner, the beneficiary, or the school.

You can transfer the money to yourself or the beneficiary electronically and then make payment to the school. This process generally takes 3–5 business days. That’s why, to ensure you leave enough time for the payments to arrive, it’s best to not wait until the last minute to request your withdrawal.

For NY529s Direct Plan, the plan administrator can send a check to the school. This is a convenient option for families. All you need is the school name, address, and name of the beneficiary/student ID. You should allow 7–10 business days for the check transfer. That’s why, to ensure you leave enough time for the payments to arrive, it’s best to not wait until the last minute to request your withdrawal.

Also, a best practice is to keep receipts, if you’re paying the bill with 529 proceeds.   

Trap 2: Not understanding qualified expenses

In order to get the benefit of federal tax-free earnings, you must use your plan money for education-related expenses. If you don’t, you could owe a 10% penalty on the earnings attributed to the withdrawal, as well as federal income taxes.

The good news is that the IRS has a broad definition of qualified education expenses, which include:

  • Tuition.
  • Fees.
  • Books.
  • Equipment, including computers, internet access, and computer software.
  • Certain room and board expenses.
  • Expenses for students with special needs.


Examples of nonqualified education expenses include:

  • Student loan payments.
  • Travel costs, such as airfare to and from school.
  • Sorority and fraternity fees.
  • Sports and entertainment costs.

For a full list of qualified education expenses, review IRS Publication 970.

Trap 3: Withdrawing too much each year

You might want to spread out withdrawals over the 4 years of college. That way you’re less likely to withdraw more than your yearly qualified expenses.

When calculating how much you’ll need, make sure you subtract any scholarship or grant money from the amount you’re planning to withdraw.

Also, deduct any federal tax credits, like the American Opportunity Tax Credit. This credit is worth $2,500 per year for students who are enrolled at least half-time at an eligible institution. It’s available to families with a modified adjusted gross income that’s $80,000 or less (single) or $160,000 or less (married filing jointly). If you claim the credit, it will reduce the amount of your expenses that are considered qualified.

Learn more about the American Opportunity Tax Credit