You’ve taken your first withdrawal to pay for your loved one’s college expenses. But can you still make contributions into your account now that you’re actively using it? Yes! Even if your student is enrolled in a two-year, four-year, graduate, vocational or professional school, you can still save in a 529 plan. The tax benefits, after all, are still available to your Invest529® or CollegeAmerica® account.
The Tax Advantages of Continuing to Save
Even though you are making withdrawals from your 529 account, you still have access to the benefits of tax-free earnings. That means even if the funds are in your account for a shorter window of time, any growth to your investment is yours to use for qualified higher education expenses.
Withdrawals used to cover those expenses are tax-free at federally accredited programs, and include recurring qualified costs that your student will be expected to pay as long as they are enrolled. Qualified higher education expenses include, among others:
- Room and board
- Computer equipment and technology fees
- Books, supplies and equipment related to enrollment and classes
As is the case with all 529 college savings plans, the burden of proof for tax purposes for qualified expenses and withdrawals is on the account owner. Retain all documentation of your beneficiary's room and board and other 529-qualifed expenses.
Eligible Virginia residents with Invest529 or CollegeAmerica accounts have the additional tax-related benefit of being able to deduct their contributions from their Virginia state income taxes. Virginia taxpayers may deduct contributions up to $4,000 per Virginia529 account per year with an unlimited carryforward to future tax years, subject to certain restrictions.
There is a Contribution Holding Period
As you continue to contribute to your account, remember the new funds must remain in the Virginia529 account for at least five business days before they can be used to cover college costs. This hold period allows time for your funds to be added to your account to be ready to use.
Let Invest529 continue to help you save for your loved one’s future ---- and maximize your tax advantages --- whether your student is reviewing their post-high school options, or they’re currently enrolled!