How to Use Your Account
Learn what’s considered a qualified education expense, how to plan ahead for deadlines, and why it's important to take your withdrawal in the correct tax year.
Review what the IRS considers to be qualified education expenses to avoid taxes and penalties.
To make sure your beneficiary and/or the eligible institution receive the money on time:
Withdrawals taken from your 529 account must match up with the payment year of qualified expenses for the exclusion to be allowed. If your payment is made in the current year for qualified expenses due in the first three months of the following year, generally the exclusion is allowed. If you have any questions, talk to your accountant or tax professional or refer to the IRS Publication 970 (PDF).
Example: You may withdraw $1,500 in December for qualified tuition expenses due for the spring semester beginning in January.
Tip: Avoid any confusion by sending the withdrawal proceeds directly to the eligible institution.
Follow these best practices to ensure your payment is made on time.
Your delivery options and tax reporting will be determined by whether the withdrawal is made payable to the account owner, beneficiary or an eligible institution.
Review delivery methods and timeframes to decide which works best for you.
Note: Withdrawal proceeds are sent the next business day after the transaction's trade date.
Overnight Delivery Example: Withdrawals confirmed Monday before 4:00 p.m. ET will be sent Tuesday for arrival Wednesday.
Follow these step-by-step instructions for withdrawals to the owner or beneficiary:
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses, summary prospectuses and CollegeAmerica Program Description, which can be obtained from a financial professional and should be read carefully before investing. CollegeAmerica is distributed by American Funds Distributors, Inc. and sold through unaffiliated intermediaries.
Depending on your state of residence, there may be an in-state plan that provides state tax and other state benefits, such as financial aid, scholarship funds and protection from creditors, not available through CollegeAmerica. Before investing in any state's 529 plan, investors should consult a tax advisor.
If withdrawals from 529 plans are used for purposes other than qualified education expenses, the earnings will be subject to a 10% federal tax penalty in addition to federal and, if applicable, state income tax.
Content contained herein is not intended to serve as impartial investment or fiduciary advice. The content has been developed by Capital Group, which receives fees for managing, distributing and/or servicing its investments.