Accounting for 529 plans and education expenses

529 plans are a popular way to save tax-advantaged funds for education. This article explains how to add a 529 account to your plan, fund it, and model education expenses, including how to pay for them from a 529 and other accounts.

Important

The Planner never automatically withdraws from a 529 account. To pay for education from a 529, you need to enter a One-Time Expense and select the 529 as the source account.

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About 529 accounts

A 529 is a savings account offered by state agencies or educational institutions to fund a beneficiary's education expenses. The beneficiary can even be you. 529s are a great option for education savings and for gifting to minors because they offer tax-free growth and tax-free withdrawals when used for qualified education expenses. Depending on your state, you may also get a state tax deduction for your contributions.

Many people won't have the full cost of education saved in a 529, so you can also fund education from after-tax accounts such as checking, savings, and brokerage accounts. Add any accounts you've set aside for education to My Plan > Assets and Debts.

Part 1: Add a 529 account

Go to My Plan > Assets and Debts.
Open the Savings section.
Click "Add an account +".
Indicate that this is a 529.
Decide whether this is your account or your spouse's account.
Either link your account or enter the details manually.
Enter an account name and balance. If you haven't funded the account yet, enter a balance of $0.
Enter growth rates:

If your 529 is invested, enter optimistic and pessimistic growth rates.
If your 529 is held in cash or another liquid option, enter 0% for both.

Part 2: Add contributions

If you plan to keep contributing to the 529, go to Income or Money Flows and add the contributions there.

Part 3: Model education expenses

You have two options, depending on how specific you want to be.

Option A: One-Time Expenses (recommended when paying from a specific account)

Go to My Plan > Expenses.
Navigate to One-Time Expenses.
Press "Add a One-Time Expense +".
Enter the amount in future dollars.
If you plan to pay over a period of time, select "Annually" and choose the appropriate start and stop dates.
Select your 529 as the source account.
Enter the age the primary planner will be when you expect the expense to occur.
Press "Save".

If the account runs short

If the source account doesn't have enough funds to cover the expense, the remainder stays unfunded. The Planner does not move on to another account. To cover the gap, add another One-Time Expense from a different account, or rely on your withdrawal order.

Option B: Recurring expenses in the Budgeter

If you'd rather include education costs with your general recurring expenses, enter them in your Budgeter.

Avoid double counting

If you use One-Time Expenses for education, remove those same costs from your recurring expenses so you don't overstate your spending.

529 assumptions

Contribution limits: 529 accounts have annual contribution limits per contributor. The Planner does not model these limits.
Qualified use: 529 funds must be used for education expenses. The Planner does not model spending restrictions.
State deductions: Most states don't tax contributions to 529 plans, though some do. The Planner models state deductions when they are available.
Withdrawals: Withdrawals from 529 plans are not taxed in the Planner by default.