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The purpose of a 529 plan is straightforward at first glance: to provide families with a tax-advantaged account for future education expenses. But not all education costs are eligible.How Can I Use Funds From a 529 Plan?
You can use the money from a 529 plan to pay for eligible education expenses. You can even use funds from a 529 plan to pay for ineligible expenses, but you’ll have to pay some fees at tax time. Here are examples of what you can use 529 funds for:Tuition and Fees
The most common way that people use 529 funds is to pay for college tuition and fees. And while some parents think they can only use a 529 to pay for college costs, those funds can also be used to pay for K-12 expenses. If your child attends private or parochial school, you can use a 529 to pay up to $10,000 a year in tuition.
Students who attend trade or vocational schools can also use 529 funds if the school is a Title IV institution. You can look up a particular trade or vocational school’s 529 eligibility using Saving For College’s lookup tool.Room and Board
Your 529 plan funds can cover most room and board expenses, whether you’re living in a college dorm or an apartment with five of your best friends. However, not all of your rent and utilities may be eligible if you live off-campus.
You’re only allowed to spend the amount your college has stated is the average cost of room and board. Any amount exceeding that figure won’t count as a qualified educational expense. You can still rent an apartment that costs more, but you’ll have to either pay the difference out of pocket or pay a 10% penalty and income tax on the difference.
Contact your school’s financial aid department to find out the room and board allowance and try to stay under that figure so you don’t get hit with the extra tax penalty.Books and Supplies
Textbooks are qualified expenses, but only books on your class reading list qualify. In other words, you can’t buy unrelated books and expect them to qualify as expenses. Also, any required class supplies are 529-eligible, such as binders, notebooks, pens and pencils.Computers and Tech
You can buy a laptop or desktop with 529 funds, and you can even use the money to pay for your monthly internet bill. If your school requires any other equipment, like a webcam or software, you can use 529 funds to pay for those items, too.
For example, if you’re a graphic design major and you need to buy Adobe software to complete a project, you can use your 529.Special Needs Services
Students who need any kind of special needs service can use 529 funds to cover those costs. This may include specific adaptive equipment that a student needs to attend class or turn in assignments.Student Loan Payments
Most assume they can only use the money in a 529 to pay for current college-related expenses. But since the SECURE Act of 2019, you can put up to $10,000 from your 529 toward existing student loans. That $10,000 figure is a lifetime limit, not an annual one, and applies to both federal and private student loans.Study Abroad
If you’re studying abroad in a program sponsored by your university, you can use 529 funds to pay for room, board and tuition costs.
However, not all the costs of studying abroad count as qualified education expenses. For example, the plane ride, souvenirs and museum visits don’t qualify.Foreign Schools
You’re not limited to using money in a 529 to pay for American schools. If the beneficiary enrolls in a foreign university, they may be able to use a 529 to pay for that tuition. However, that school must be a Title IV institution. You can find a full list of qualifying foreign schools here.Surprising Expenses That Aren’t Eligible
Not all college-related expenses are eligible, even if they seem necessary. For example, you can’t use 529 funds for transportation expenses like traveling to campus or going home during school breaks.
Here are some other expenses that don’t qualify:School-sponsored health insuranceCollege entrance and application feesFraternity or sorority fees (you can use 529 funds to pay for meals at a fraternity or sorority, but dues are considered ineligible expenses)Fees for activities and clubsOther living expenses
What if I Saved More Than I Can Spend?
Some parents find themselves with more money than they need in a child’s 529, often because they saved too much or because their child received more scholarships and grants than they predicted.
If you end up having more than you need in a 529, there are other ways to spend that money without paying taxes and the 10% penalty.
You can always keep the money in the same 529 and change the beneficiary. For example, if you have other children, you can make them the beneficiary instead of your current college-bound child. If you have other relatives, you can also make them the beneficiary. You won’t incur any special fees by doing this.
If your child is attending graduate or professional school, they can also use the 529 to pay for the same expenses that they incurred for their undergraduate degree.What Happens if I Make a Non-QualifiedPurchase?
If you make a non-qualified purchase, you’ll have to report the money as income on your taxes. That means you may pay federal, state and local taxes on the funds. You’ll also owe a 10% penalty.
Still, if you have extra money and can’t think of anything else to use it for, then making a non-qualified purchase may be your best option.Best Student Loan Refinance Lenders Of 2023
Find the best Student Loan Refinance Lenders for your needs.
Cost of living latest: Pensions set for significant rise – here’s how much they could go up under triple lock
The triple lock means pensions rise by whatever is higher in September out of: earnings, inflation, or 2.5%.
The wage data we have just reported means earnings is highest – so the rise next April could be 8.5%.
This could present a financial headache for the chancellor and all eyes will be on whether the government sticks to the lock.
Jonathan Cribb, associate director at the Institute for Fiscal Studies, said: “Today’s figures from the ONS show that average earnings growth in the year to May to July 2023 was 8.5%.
“This figure is particularly important as it is very likely to be used in determining how much the state pension increases by next April for the UK’s 12 million pensioners.”
If today’s figure is used, the IFS says it means that a full basic state pension would rise from its current £156.20 per week to £169.50.
Meanwhile, a full new state pension – which those who reached state pension age since April 2016 can receive – would rise from £203.85 per week to £221.20.
Risk to the sustainability of the state pension system
That’s what it means for pensioners – but what does it mean for the public finances?
Mr Cribb went on: “Since its introduction in 2010, the triple lock, together with the introduction of the new state pension, has significantly increased the generosity of the state pension relative to earnings.
“But this comes at a cost to public finances – the triple lock has added £11bn to spending on the state pension in 2023-24 relative to price or earnings indexation.
“Compared with the OBR’s forecast from just six months ago, today’s figures mean spending on the state pension is set to increase by another £2bn in 2024-25.
“These increasing public finance pressures caused by the triple lock, especially in periods of macroeconomic volatility as we have experienced in recent years, risk the sustainability of the state pension system, meaning heightened uncertainty for individuals planning their retirement finances.”
September dates for benefits, pensions and cost of living payments
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The UK received a rare flurry of positive economic news in mid-August when the Office for National Statistics announced that wage increases had gone up at a record rate, that inflation had fallen to 6.8 per cent and that food prices had begun to climb down.
While those might have suggested the cost of living was finally easing, the positivity masked the fact that core inflation – which removes volatile food and energy prices from the equation – remained stubbornly unchanged at 6.9 per cent, leading some experts to warn that any gains would be “swallowed up” by higher borrowing costs.
With inflation still well north of its 2 per cent target, the Bank of England looks all but certain to implement a further interest rate rise when its Monetary Policy Committee next meets in September in a bid to tame it.
That is likely to take the current 5.25 per cent base rate up to 5.5 per cent, a further unwelcome development for many already struggling with mortgage payments, particularly those with tracker or standard variable rate mortgages that follow the central bank’s lead.
“Most people haven’t yet felt the interest rate squeeze in full, and it’s only when historic fixed rates roll off that we’ll really know the full extent of the economic pain rate rises have inflicted,” Wealth Club investment manager Nicholas Hyett has warned. “We’re not out of the woods yet.”
With that in mind, here is a look at what state financial support is available to households this September.
Despite the expiration of Rishi Sunak’s Energy Bill Support Scheme at the end of March (an initiative that handed out £400 in monthly instalments of £66 and £67), millions of households on low incomes will receive further cost of living support from the government this year worth up to £1,350 in total.
Eight million eligible means-tested benefits claimants, including people on universal credit, pension credit and tax credits, will receive the next £300 instalment of the cost of living payments as part of a programme that began this spring, with the money going directly to bank accounts in three tranches, the Department for Work and Pensions (DWP) has said. The payments will total £900 overall.
There will also be a separate £150 payment for more than six million people with disabilities and an extra £300 for over eight million pensioners.
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Here are the payment windows that have been announced so far, with more precise dates expected later in the year:£301 – First cost of living payment – already issued between 25 April and 17 May (or 2 to 9 May for people on tax credits but no other low-income benefits)£150 – Disability payment – between 20 June and 4 July 2023£300 – Second cost of living payment – during autumn 2023£300 – Pensioner payment – during winter 2023/4£299 – Third cost of living payment – during spring 2024
Benefits going out as usual
The usual state support in the shape of benefits and pensions payments will also be going out as normal in September, with no bank holidays scheduled to confuse delivery dates.
Anyone expecting to receive any of the following from the DWP can expect their money on the usual date this month.Universal creditState pensionPension creditDisability living allowancePersonal independence paymentAttendance allowanceCarer’s allowanceEmployment support allowanceIncome supportJobseeker’s allowance
For more information on how and when state benefits are paid, please visit the government’s website.
Energy Price Cap falls below guarantee’s threshold
The belated improvement in the weather we are seeing in September might not be comfortable for everyone but it will at least greatly reduce the need for having the central heating switched on, which proved such an expense over the course of the winter just gone.
The government’s Energy Price Guarantee (EPG) – introduced by short-lived prime minister Liz Truss a year ago to ensure households paid no more than £2,500 for their electricity and gas, with the government subsidising the remainder owed to providers under Ofgem’s Energy Price Cap (EPC) – was extended by chancellor Jeremy Hunt in his Budget of 15 March for a further three months.
Mr Hunt had reportedly been tempted to increase the EPG to £3,000, a considerably less generous offer that would have eased the burden on the state, but settled for extending the guarantee into April, May and June at its present rate before finally bringing that hike into effect from July.
However, now that Ofgem’s cap has fallen below £2,500, having been set at £2,074 for the third quarter of 2023, the EPG has been rendered an irrelevance, for most, in any case, with the vast majority of households now paying the EPC rate as normal.
That £2,074 figure represents a huge 17 per cent fall from the £3,280 the cap was set at during the second quarter, from which households were shielded by the then-very-necessary intervention of the government’s overriding EPG.
That decrease reflects recent drops in wholesale energy prices – the amount energy firms pay for electricity and gas before supplying it to households – and, although it is a significant drop from the eye-watering rates of the last two years, the figure remains more than £1,000 a year above pre-pandemic levels.
Ofgem has since announced that the cap will be set at £1,923 for the final quarter of the year.
As for what might happen next, consultancy firm Cornwall Insight sees almost no change by the time the next EPC is announced for the quarter beginning 1 January 2024, at which point it predicts the typical annual bill be at £1,932.24.
The forecaster is currently predicting small declines for the second and third quarters of next year as well before a slight uptick comes in from next October.
Despite that the picture is, on the whole, looking far more stable than it did a year ago when the consequences of Russia’s war in Ukraine were first being felt in global energy markets, which is certainly a welcome development.