How to Use College Savings to Pay for Classes Not Covered by Financial Aid

Young people with special needs may be looking forward to becoming full-time college students, or they may wish to take just a course or two for a specific purpose or to see whether college is the right choice for them. However, non-degree-seeking students are not eligible for federal student aid, so students and their parents may need to consider other methods of paying for college expenses. A 529 plan can be a good option.

New York’s 529 College Savings Program allows one to save for oneself or for a child, grandchild or friend. Funds can be used at eligible two- or four-year colleges or vocational schools anywhere in the country, for tuition, books and certain housing and food expenses. Qualified withdrawals are federally tax-free and earnings grow federally tax-deferred. Additionally, up to $5,000 (or $10,000 for married couples filing jointly) in contributions may be deducted from one’s New York state tax return. A range of stock investments is available, managed by Vanguard.

The additional benefit of 529 plans is that the funds may be used by students who are only taking a class or two and therefore not eligible for federal student aid. Students should check to be sure the institution where they plan to study qualifies as one where students can use 529 funds, and they should check with the school about their status: institutions may have different rules regarding undeclared majors or half-time status that affect eligibility for student aid.

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