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How Can I Withdraw Money From My 529 College Savings Plan Without Penalty?

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You don’t need to be a parent to know that saving for a child’s education is important (and getting more expensive every year). According to the College Board’s “Trends in College Pricing 2021” report, tuition for in-state students attending a four-year public college increased by 1.6% — and for students attending a four-year private institution, it increased by 2.1% during the 2021-2022 academic year.

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A 529 college savings plan is one of the best ways to squirrel away money due to its impressive list of available uses and tax deductions. 529 plans are state-run, tax-advantaged accounts that allow you to save for a child’s college education.

All states offer 529 plans (except for Wyoming), and there are two types: Savings plans (savings are normally invested in mutual funds or exchange-traded funds [EFTs]; more common and more variety) and prepaid tuition plans (purchasing tuition credits at today’s prices to use in the future; less common and more restrictive).

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You can use 529 plans to pay for college and apprenticeship programs (as well as for K-12 tuition and private schools thanks to the 2017 Tax Cuts and Jobs Act). The SECURE Act of 2019 made it possible to use a 529 to pay up to $10,000 of a beneficiary’s student loans and up to $10,000 for the loans of the beneficiaries’ siblings, as well. If you use a 529 plan to save for college, it will have a minimal impact on financial aid eligibility, according to Saving for College.

Because each state has different plans and you don’t necessarily have to be a resident to get its 529, do your research and pay attention to the tax breaks, fees, investment strategies and type of plan each state provides.

Related: How Inflation Is Impacting College Students Heading Into the New School Year

According to a recent poll conducted by Edward Jones and Morning Consult, only 40% of respondents recognize a 529 plan as an education savings tool, with 51% of those asked claiming they didn’t know or were unable to answer the question.

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Any parent or benefactor should be able to invest in a 529 without much difficulty. However, according to Consumer Reports, not only is withdrawing from a 529 account more complicated than people think, but most Americans are unaware of how these plans work and their potential tax benefits.

To ensure you are withdrawing funds from your 529 plan properly, here are some tips to keep in mind:

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See: 29 States Now Offer Some Form of Tuition-Free Education, So Why Aren’t People Going to College?
College Budgeting: Don’t Panic Over Sticker Shock — Your Tuition Could Be Much Less Than Advertised

Forbes offers a comprehensive summary of 529 plans by state, which you can check out here.

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