Mind Your T's and Q's: Saving Money for your Kids’ College Tuition the Right Way
One of the biggest investments a parent will make is their child’s college education. The process of saving up for college is arduous and can be a burden on any level of household income. Simply putting money away in the bank is NOT the best method to plan for your child’s education. The best way is with a 529 Plan.
A 529 Plan is a qualified plan that allows you to put money away for education, while allowing it to grow WITHOUT BEING TAXED. The tax benefits are easily the biggest advantage to such a plan. The account can grow unimpeded by taxation, and be transferred directly to a university’s tuition bill. However, any money withdrawn from a 529 account MUST be used for educational purposes.
Here is where one must “mind their T’s and Q’s.” A 1098-T is an IRS form given by the University to show or report payments given from a qualified account. Each 1098-T has a copy in RED to be filed with the IRS, as well as a copy in black to be kept for records. A 1098-T is a key tax document needed in order to get a 1099-Q from your bank. The 1099-Q states that money was taken out of a qualified account and used for educational purposes. Withdrawing money for any reason other than educational purposes will result in serious tax implications. In addition, as soon as you do withdraw money from a 529 account for education purposes, the IRS will need proof in the form of a 1098-T and 1099-Q.
Below are links to examples of those forms:
If you have any other questions about a 529 Plan, or would like to start one, click the link below.
