I goofed! I used 529 college-savings money last year to pay for educational expenses for two of my grandchildren that I thought would be tax-free. But they weren’t so I ended up paying income taxes and a 10 percent tax penalty on the money withdrawn from their 529 plans.

My very bright grandson in Kentucky graduated from a private college in Indiana where his expenses were more than 90 percent paid by scholarships and work-study. Because he was borrowing only a small amount each year at a low interest rate and was likely to go to graduate school, my daughter and I decided to not use the money in the 529 plan I had funded for him.

He decided to delay graduate school so his small loan came due at slightly less than $90 monthly. I paid for 12 months all at once last year, but my tax adviser told me this year that paying a college loan is not an eligible 529 expense. Therefore, instead of a tax-free 529 withdrawal, I got hit with income taxes plus a 10 percent penalty.

The new SECURE Act, passed by the House and awaiting Senate approval, would allow tax-free 529 withdrawals to pay back college loans. Rightly so, given that 44.7 million borrowers have college debt that now totals $1.6 trillion — more than four times higher than the $350 billion total 15 years ago. Seven percent (3.2 million) of the borrowers are seniors age 60 and over.

Last year was the first year that 529 contributions, up to $10,000, could be used for K-12 expenses so I paid several thousand dollars from my teenage grandson’s 529 for summer tutoring at a well-respected (and expensive) Sylvan Learning Center. The catch is that tutoring through a school is recognized as a valid expense, but not tutoring money spent at Sylvan or for other non-school-employed tutors.

Nothing has skyrocketed as much as college expenses. Sixty-five years ago in 1954 when I entered Huntington College in Indiana, the tuition was $320 a year. Today, it is $25,956 for the 2019-20 school year, a whopping 8,000 percent increase!

If you can’t afford to save both for retirement and for college expenses, choose IRA plans. IRA money can be used for college expenses without paying the usual 10 percent early-withdrawal penalty but income taxes are due on all the money withdrawn in a traditional IRA and on the investment gains in a Roth IRA. (Roth contributions, of course, are always tax-free.)

All 50 states have 529 plans that are open to everyone and can be used tax-free for educational expenses for K-12 ($10,000 per year limit) as well as for the total cost for vocational training and for attendance at colleges and universities. However, if you take advantage of the federal $4,000 American Opportunity Tax Credit, that amount must be subtracted from the total.

All but the very poorest families are required to pay at least a small amount (or borrow it). That amount is called the expected family contribution. One disadvantage is that 529 plans controlled by the parents or students count 5.64 percent toward the family’s contribution.

Money in plans controlled by grandparents does not count against college aid until that money is withdrawn. However, when it is used, it can hurt — offsetting up to 50 percent of later student aid. Therefore, always use grandparents’ 529 plans last — for expenses during the student’s junior and senior years. (Given the more than calendar-year lag time for college-aid FAFSA applications, typically grandparent 529 plan withdrawals for the last two years of college will not count against student aid at all.)

The cost of attendance means that money in a 529 plan can be used for tuition, room and board, books, computers, and other education supplies, but it does not include transportation. If a student lives off campus or at home, almost all colleges provide an allowance amount that is valid to claim withdrawals. Also, studying abroad expenses are eligible as long as the U.S. college is providing credit.

Because North Carolina no longer provides a state tax break for participating in its 529 plan (nc529.org or 800-866-2362), it might make sense to seek out other state plans if more stock-fund choices are desired. The only all-stock N.C. choices are the Vanguard Total U.S. Stock Market and Total International choices. I do 75 percent U.S. and 25 percent International for my grandchildren and one great-grandchild.

My problem with the NC 529 Vanguard age-weighted fund choices is that they are far too conservative. Even its most aggressive age-weighted plan has 12.5 percent in bonds at age 5 and 25 percent in bonds at age 9! At those ages, every dollar should be invested in all-stock funds.

If you want a far better age-weighted plan, sign up for the Arkansas T. Rowe Price College Savings Plan (800-587-7301). According to Morningstar, T.R. Price’s age-weighted funds are the number one performers. Also consider Morningstar’s four gold-rated 529 plans. They are: (1) Illinois’s Bright Start (877-408-3842), (2) Virginia’s Invest 529 (800-567-0540), (3) Nevada’s Vanguard 529 (866-734-4530), and (4) Utah’s Educational Savings (800-418-2551). For more rating information on all 529s, see savingforcollege.com.

The amount you can put into a 529 plan is huge. You are allowed $15,000 gifts per year per person to anyone without filing a gift-tax form. Practically all 529s allow an immediate five-year contribution of $75,000 to start. The maximum total allowed in NC 529’s plan is $450,000. At the other end of the scale, NC’s 529 permits contributions for as little as $25 — an automatic $25 a month deduction from your checking account is a great low-cost way to begin.

The other way to save for K-college educational expenses is the Coverdell Educational Savings Account (ESA) that also allows money to grow tax-free. Unlike 529s that have no age restrictions and huge money limits, ESAs allow only a maximum $2,000 contribution yearly for kids.

No money can be added to an ESA once the beneficiary celebrates his/her 18th birthday. Also all the money in the ESA account must be spent before age 30 or there are taxes due and a 10 percent tax penalty.

However, just like 529s, ESA beneficiaries may be changed once a year to another member of the extended family. So if one of my grandchildren decides not to go to college I can transfer it to another grandchild — his/her cousin.

The big ESA advantage is that they can be opened at most mutual fund families or even better yet at discount brokerages. (TD Ameritrade allows you to open an ESA for as little as $500.) Then you can buy any stock or mutual fund. For example, you might buy that youngster shares of Disney.

As important as saving for college is, I would not prioritize it over buying a Roth-IRA every year or participating in your pension plan at work. Typically, none of those programs count toward the expected family contribution and IRAs can be used without tax penalties (but not tax-free except for Roth contributions) for college expenses.

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