22 Apr When should we use 529 plan money for college bills?

Q. I have $60,000 in cash for college expenses. I have two 529 plans for my two kids, each worth about $100,000. One kid has three years of college to go at about $70,000 a year — we’re on a payment plan and I try to use as much from cash flow to pay the bills — and the other kid will go to law school, probably about $70,000 a year for three years also, in another year. There will be some overlap but we make too much money to get any substantial financial aid. At what point should we take from the 529 plan for the younger one?
— Mom

A. There’s a lot that goes into deciding how to pay for college.

With so many moving parts, we can’t tell you specifically what you should do, but because the balances in your 529 plans are not enough to cover all their expenses, let’s cover some of the other strategies you’ll need to consider.

Start by assessing your current cash flow situation and your expectations for it in the future, said Michael Green, a certified financial planner with GYL Financial Synergies in Parsippany.

“Since you anticipate needing to use the 529 plan funds to cover a significant portion of their education costs, it might be beneficial to start withdrawing sooner rather than later,” he said. “That will give you time to continue saving cash to use when the 529 plans are depleted.”

Green said you need to keep in mind the tax implications of 529 plan withdrawals.

Qualified withdrawals for qualified education expenses are tax-free, so you’ll want to ensure you maximize the plan’s tax advantages, he said, noting that based on the amounts each child is paying for school, that should not be a problem.

If you choose to deplete your cash before the 529 plans, the 529 plans will potentially have more time to grow tax-free, he said.

Finally, you could consider finding the right balance between using your cash flow and tapping into the 529 plan funds, he said.

“You want to ensure that you’re not depleting your savings unnecessarily but also taking advantage of the funds you’ve saved specifically for education expenses,” he said. “It’s important to remember that you can borrow money for education but not for retirement.”

Ultimately, deciding when to start withdrawing from the 529 plan for your younger child will depend on your circumstances and priorities, he said. If you’re uncertain about the best course of action, consider consulting with a financial advisor who can provide personalized advice based on your financial situation and goals, Green said.

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This story was originally published in April 2024.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.