As we gather with family this Thanksgiving, we wanted to share some important financial considerations for those of you with college kids or grandkids coming home for the holiday. These conversations might not be as exciting as catching up on campus life, but taking a few minutes to address them now can save you headaches later.
Sending a child off to college is an exciting milestone, but it also brings new financial and legal considerations. Managing 529 accounts can be confusing, and your young adult’s newfound legal rights at age 18 mean you may need to update some important documents. Here are a few key financial matters to discuss before they head back to campus:
1. Time 529 Withdrawals with College Expenses
When using 529 funds, timing matters. Withdrawals must correspond to expenses incurred in the same tax year to maintain the tax-free status of your investment.
Here’s what this means practically: If you plan to pay for the spring semester in January, wait until January to withdraw from your 529 account. Otherwise, if you distribute the cash to your checking account in December and then pay the tuition in January, you’ve just taken a non-qualified withdrawal. This could result in taxes and penalties on the earnings portion. Here’s another scenario: let’s say you decide to take a withdrawal in January 2026 to cover some expenses from the fall 2025 semester – that’s also a non-qualified event that can trigger taxes and penalties.
Since Thanksgiving comes right before this critical December-January window, now is the perfect time to review your payment schedule and plan your 529 withdrawals accordingly.
2. Consider a Signed Power of Attorney for Health and Finance
Once your child turns 18, they become a legal adult. This means you no longer have automatic access to their medical or financial information, even in an emergency.
A signed power of attorney for both health and finances allows you to make important decisions if they cannot. This is crucial if a serious medical situation or financial emergency arises while they’re away at school. It’s a conversation worth having while they’re home and can easily sign the necessary documents.
3. Rebalance Your 529 Investments
Early in your child’s life, you likely invested more aggressively in their 529 account to maximize growth potential. However, conservative investments closer to college age can help preserve your savings from market volatility.
Rebalancing regularly protects your funds as you approach withdrawal time. If you’re already using the 529 funds to pay for tuition and planning to use them again soon (100% or close to it in subsequent years), we recommend you heavily weight the accounts toward cash or stable value options to avoid market risk right before you need the money.
We hope you and your family have a wonderful Thanksgiving. If you’d like to discuss any of these topics as they relate to your family’s situation, please don’t hesitate to reach out. We are here to help ensure your college student’s financial foundation is solid.
Please note: This information is for educational purposes only and should not be considered tax or legal advice. Consult with your tax advisor or attorney regarding your specific situation.
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