I have a child who is a college-bound high school senior.

We live in a high tax state that offers a tax deduction on contributions of up to $10K per year to the state's 529 plan.

At this time we have about 40% of the projected cost of a four year education in the 529 plan. We don't have a great deal of non-retirement savings to cover college costs but we have good current income and a HELOC that gives us flexibility to on tuition payment timing.

What is my best allowed strategy for contributions and withdrawals for the time that she is in college?

Can I continue to make contributions (to get the tax break) while also making withdrawals to cover current costs in the same year?

Would I be better off minimizing/deferring the withdrawals for as long as I can afford to?

Since this is our only child the ideal outcome would be for the fund to be empty at the end of her four year college term.

  • The answer will probably depend on exactly which state you live in, but I would imagine you can still contribute to the account normally while also withdrawing from it.
    – chepner
    Commented Jan 10, 2018 at 22:47

1 Answer 1


There are a couple of things to keep in mind.

Yes you can contribute to make contributions while your child is in college. Check with the state to see if there is any minimum amount of time that funds have to stay in the account.

Review what the funds can be used for, you don't want to spend funds on something and then find out it isn't an allowable expense. The list has been modified over the years.

You may also be eligible for tax credits. If you pay for everything with 529 funds, there won't be expenses that can be used to trigger the tax credit. With the first $2,000 in annual tuition being a tax credit the $2K goes to the college instead of Uncle Sam. Check the eligibility rules.

Understand what happens if there are scholarships involved.

The tax forms can be very confusing. Most people pay a fall tuition, by December 31st. But the 1009-T assumes that you also paid for the Spring semester. So none of the numbers add up.

Regarding timing. If the 529 is automatically shifting to more conservative investments, waiting longer to spend the money doesn't help very much. I felt spending the money starting with the first semester, worked out the best for us. I felt it was better to not have 529 money for the last semester compared with ending the 4 years with money in the account.

  • I wasn't aware of the "American Opportunity" tax credit. It looks like it would be to my benefit to pay at least $4K of tuition every year out of non-529 funds. (to get the maximum $2,500 credit).
    – AllInOne
    Commented Jan 11, 2018 at 16:26
  • I just called my states's toll free number and the representative (from Vanguard) confirmed that contributions can continue in the same tax year as withdrawals. The minimum time in the account is not a statutory limit but it does take time for new contributions to clear. They recommended waiting a week for new contributions to be available for withdrawal.
    – AllInOne
    Commented Jan 24, 2018 at 17:10

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