I currently have two kids in college. Their 529 plans are covering a huge chunk of their expenses, but they face costs that are not eligible for reimbursement from the plan.
These costs include:
- The costs of getting them to and from school (with all their stuff),
- The costs of the housing-priced-above-the-school’s-published-rates they found themselves in because they were slow to sign up for housing for their sophomore years,
- The costs of study abroad that are required for the study abroad but do not qualify for 529 reimbursement.
Early on with our first kid, these were expensive surprises, as we didn’t realize just how much they would add up to.
Since then, what we’ve started doing is diverting the money we would have contributed to our college-aged kids’ 529 accounts to what we call an “in lieu of” account. It’s basically a savings account earmarked to cover the college costs that the 529 can’t. The money for those non-qualifying costs comes from there first. Then, if there’s any left over just before the end of the year, the remainder makes its way into their 529 accounts.
This move has dramatically reduced the financial stress associated with these costs. Sure, we don’t get the state tax break on the amount spent instead of contributed. But in the grand scheme of things, that’s still cheaper than making non-qualified withdrawals…
Regards,
-Chuck