Students heading to school this fall may have some expenses paid through 529 plans.

5 Steps for Utilizing 529 College Savings Plan Funds

To pay for school this fall, parents need to know how to access and utilize their savings plan assets.

Students heading to school this fall may have some expenses paid through 529 plans.

Students heading to school this fall may have some expenses paid through 529 plans.

By + More

Parents of students starting college this fall can finally withdraw the funds they've worked so hard to accumulate in their 529 plans, education savings plans with tax benefits.

But before parents request funds from their plan administrator or adviser, they have to be aware of key details, such as when tuition is due and how long it takes to ask for a distribution of funds and receive the check. 

Parents should follow the following steps to withdraw funds from a 529 college savings plan

1. Review the tuition payment due dates: Your first step in planning when to take distributions from a 529 plan is to look at the financial aid calendar on the university website, says HC Financial Advisors, Inc. Certified Financial Planner Karla McAvoy. "You don't want to be in a situation where, 'Oh my gosh, tuition is due Friday and it's Wednesday,'" she says. Start the process of requesting funds at least five to 10 days before payment is required, McAvoy says. 

2. Estimate time needed to cash out investments: The amount of time varies to withdraw money from a 529 plan because it's not as simple as calling the plan administrator or adviser to cut a check, says Certified Public Accountant and Personal Financial Specialist Jason Washo.

While some plans contain only money market or savings accounts, he notes most accounts contain mutual funds or short-term bonds. This means there has to be a settlement period for noncash investments to be sold or traded. 

For example, Washo says, "a parent calls a plan administrator on Monday and tells them, 'I need $5,000.'" The plan administrator will place the trades, he says. "The funds won't be available till Thursday. The check is then cut Friday." By comparison, he notes, investments that are solely in savings or money markets are available the same or next day. 

[Take these steps before opening a 529 plan.] 

3. Consider potential delays: "If you deposit a $10,000 check and your average checking account balance is $2,000, your bank is probably not going to turn around and let you have access to that money the next day," Washo says. "If you deposit a check larger than your current balance, they bank is likely going to put a one-, two-, or maybe three-day hold." 

Wiring money avoids check clearing delays, says McAvoy of HC Financial Advisors, Inc., but does require paperwork. Experts say it's a great option when tuition is due quickly or the extra fee is worth not waiting for the check to arrive in the mail. You'll still have to wait for noncash investments to sell or trade first. 

4. Decide where tuition checks should be sent: While parents can request checks to be sent to the university or to themselves, Washo recommends that parents have 529 distribution money sent directly to them so they don't have to worry about confirming receipt of the checks by the university. 

After the check from the 529 plan administrator clears their account, parents can pay tuition online and receive a receipt from the school website. If writing a check from a bank account, Washo suggests that parents send the check to their son or daughter so it can be hand delivered to the student accounting department. 

[Learn more about paying for college.] 

5. Request distributions: Once parents complete their research of deadlines and time tables, it's time to request funds. Parents who enrolled in plans through an advisor should contact him or her when ready to withdraw funds, says Virginia 529 College Savings Plan spokesperson Scott Ridgely. Owners of direct 529 plans should contact the plan administrator for withdrawals. 

No matter whether you request a check or have the money wired, save all receipts from the university and from the investment accounts, Washo recommends. Since 529 plans have a tax benefit, you might need to prove that 529 plan money was spent on education in the event of an audit. 

Reyna Gobel, frequently quoted as an expert on student loans and college costs, is the author of "Graduation Debt: How To Manage Student Loans And Live Your Life" and "How Smart Students Pay for School: The Best Way to Save for College, Get the Right Loans, and Repay Debt." She has appeared on PBS's Nightly Business Report and speaks regularly at CollegeWeekLive.