529 Withdrawal Rules: When to Withdraw Funds and How to Use Them
It’s never too early to start thinking about a child’s education — whether that’s college, middle school, or trade school. You know this, so you’re interested in opening an NC 529 Account, but if you’re unclear on the “rules of the road,” so to speak, we’ve got you covered.
Understanding NC 529 Account Rules
Let’s define the NC 529 Plan first. It’s a tax-advantaged program that helps families and students save for K–12 tuition, college expenses, and other eligible education costs. The money grows free of Uncle Sam’s taxes as long as it’s used to pay for education. Like anything, though, there are some rules about how you can use the funds.
Basically, there are two types of withdrawals you can make from the account, and each has its own 529 withdrawal rules. We’re talking about qualified and non-qualified withdrawals. If you take a qualified withdrawal, you won’t have to pay state or federal taxes. You will have to pay taxes and a penalty if you take a non-qualified withdrawal.
Qualified NC 529 withdrawals include things like books, tuition, computer software, special-needs services expenses, and more. A non-qualified withdrawal is basically anything else not related to educational purposes, like a vacation or a new car.
Qualified NC 529 Withdrawals
Still fuzzy on what the 529 withdrawal rules are and how the money can be used? Let’s break it down.
- College expenses (think room and board, books, tuition, a computer)
- Trade school expenses (but they must be on the Federal Student Aid list)
- K–12 tuition (yes, not just college! Up to $10,000 of NC 529 funds per year, per child)
- Special needs equipment
- Apprenticeship program expenses (programs registered with the S. Department of Labor or State Apprenticeship Agency)
- Student loan payments (up to $10,000 per individual, per account)
How to Withdraw Money From an NC 529 Account
Alright, so you’ve made an account, and you’re ready to get money for your education, just without penalties. Great news! If you’re using the funds for qualified educational purposes, there will be no penalties! You must complete a withdrawal request form either from your online account or mail one to the program administrator. Make sure you have your social security number because a qualified withdrawal won’t be allowed without it on the form.
The NC 529 withdrawal rules state you must pull out at least $250 for a qualified withdrawal; unless that will put the account in the red, in which case the account will be closed. A separate form/request is required for each withdrawal. There is a $50.00 administrative charge for non-qualified withdrawals or rollovers.
Fill out your request for a withdrawal here.
When Can You Withdraw Funds?
Maybe the biggest question around all the NC 529 withdrawal rules is when you can take out money. The NC 529 Account owner can withdraw funds any time 60 days after the account is started. Seems simple enough! However, there are some 529 withdrawal rules on how often you can pull out funds. The program may restrict withdrawals after processing four in the same account in a month, and withdrawals may be delayed when financial trading is restricted by the Securities and Exchange Commission (SEC).
What Happens to Unused Money in an NC 529 Account?
While the NC 529 Account helps families save for just about any school in the United States and some foreign schools, sometimes not every penny is needed. This money does not, and should not, be wasted! You can set up a new beneficiary on the account, transfer the remaining funds to another child’s account, or use the money to repay student loans.
NC 529 withdrawal rules make it easy to maximize the tax advantages of education savings, so you’ll be prepared when your child needs the money for school. Learn more about opening an account and start saving today. NC 529 enrollment takes just a few minutes and a minimum $25 contribution.