529 Plan Minimum
April 16th, 2008
Question: Is there a minimum duration that money must stay in a 529 Plan?
Wondering if there’s a minimum duration that funds must stay in a 529 Plan? My wife is currently attending college part-time and want to know if we can take advantage of a 529 Plan immediately.
Also does she need to attend college full-time to use a 529 Plan?
Answer: It won’t work.
1. While there is no minimum duration, you won’t much time to “grow” tax deferred. Eg, you put $10,000 into the 529 and it earns $200 before you withdraw the $10,200.
2. To withdraw the $10,200 and have the $200 be untaxed, you have to show that you spent $10200 or more on tuition…and then you can’t use the same $10,200 for an education credit worth up to of $2000. The education credit is worth a lot more than the tax/penalty on $200.
(If she was a full time student you could use the cost of room and board to meet the tests and then have both the 529 earnings be tax exempt as well as the education credit.)
IRS pub 970.
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