Factors to Consider When Spending 529 Plan Funds

For many parents (and grandparents) of future college-bound students, a 529 plan has been a key part of their overall college savings strategy. But, even though these financial vehicles can provide some tax-advantaged methods of saving for future education costs, they can also come with a long list of stipulations to abide by. And in many cases, this plethora of rules can make it much more difficult to know what is, and what isn’t, allowable in order for the plan to keep its tax favored status.

With that in mind, there are several important factors to consider when deciding whether or not to pursue (or continue) with funding a 529 plan. One of these criteria is what does and does not qualify as an educational expense.


The Do’s and Don’ts of Spending College 529 Plan Funds

While college students have, for the most part, had many of the same expenses throughout the years – such as tuition, and room and board – today’s higher education experience can also differ in many ways. One key difference is that more students prefer to reside off campus. Using funds from a 529 plan for this type of living arrangement, however, can present somewhat of a “gray” area.

For example, provided that a student is enrolled at least half-time, the IRS (Internal Revenue Service) will typically approve the room and board costs for a student’s off campus housing. But there are some points to keep in mind here, such as the fact that the cost must not exceed the room and board allowance that is included in the educational institution’s cost of attendance. (This cost is determined by the college or university itself).

With that in mind, it is important to remember that this amount will serve as a “cap” on qualified room and board expenses. So, if the actual costs are less, then such expenses will be the limiting amount.1


A More Flexible Way to Save and Spend for College

If your clients have been seeking a more flexible way of saving and spending for college, a permanent life insurance policy can offer them many of the same types of tax benefits, along with much more flexibility in terms of what the money is allowed to be spend on – including costs that are not considered to be educational in nature.

For example, while life insurance cash value can offer a way to save in a tax-deferred manner, upon withdrawing these funds, the money can be used for any need that the policy holder sees fit. This can be to help fund the cost of a loved one’s college education – but it does not have to be.

As an added benefit, if something should happen to the insured and he or she passes away, then the child / student beneficiary can receive the amount of the death benefit – free of income taxation – and likewise use these funds for any need.


Covering All of the Bases for College Funding – and Then Some

When you offer permanent life insurance as a college savings strategy to your clients, you can provide them with much more flexibility in terms of what the money can be spent on down the road – which includes both education and non-education related items. This, in turn, can allow for much more flexibility, regardless of whether or not the student ends up pursuing higher education.

If you would like to join thousands of other insurance professionals who are already using these types of strategies for generating an additional $5,000 or more in monthly commission – without having to engage in any additional prospecting – and while also offering clients a way to make sure that their future expenses can be met, then give us a call today, toll-free, at 1-800-643-6143.





  1. 4 Common Questions About Spending 529 College Savings Funds. U.S. News. (https://www.usnews.com/education/best-colleges/paying-for-college/articles/2015/06/17/4-common-questions-about-spending-529-college-savings-funds)


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