Here’s what you should know about 529 plans

And should you still make payments on a student loan even if you don’t have to?

i ng student loan payments during the forbearance period?

A: The Coronavirus Aid, Relief, and Economic Security Act or Cares Act automatically suspended payments for most people with federal student loans until Sept. 30.

During this pay ment “pause,” interest on federal loans owned by the government is effectively reset to zero percent.

If you’ve lost your job or been furloughed, you may not have a choice. You have to take the payment break.

But you might want to consider continuing to make payments if you can afford to do so. Keep in mind that every penny of your pay- ment goes straight to reducing your principal, which will save you money in the end.

However, if you qualify for the Public Service Loan Forgiveness (PSLF) Program, or you’re close to loan forgive- ness for an income-based payment plan, you could use the payment break to cover other expenses or build your savings.

By the way, if you meet all the conditions under the PSLF program, you will receive credit toward loan forgiveness for any payments that are waived due to the Cares Act. It would be as if you made the payments. money is refunded to return the funds without penalty, which only applies to the non-qualified distribution.

But these are not normal times. Because of the Q: What is the possible pa n demic, the IRS has tax ramification for colissued guidance that gives lege refunds of money 529 plan account holders a taken from 529 plans? wider window to return the

A: Colleges that sent stu- refunded money, according dents home from campuses to Roger Young, a senior have been issuing refunds financial planner at T. Rowe for tuition, fees and room Price. and board. For some famIf the 60-day period ilies, it’s a welcome injecended on or after April 1, tion of money. account holders have until

But the refunds have crethe July 15 tax deadline to ated concern for people who replace the money withpaid college expenses with out incurring taxes or the money withdrawn from a 10% penalty.

529 college savings plans, If your child is graduwhich allows contributions ating and won’t need the to grow tax-free. money, another option is

If the funds are used to put the funds back and for qualified educational then transfer it to a sibling expenses, earnings are gen- or another eligible family erally not taxed. member, Young said.

However, if money from a With more classes per529 plan is not used for qual- haps being taught online, ified education expenses, you might use the money to referred to as a “non-qualupgrade your child’s comified” distribut i on, the puter, which is a qualified account holder has to pay expense, Tsai said. income taxes on the earnings and an additional 10% penalty.

Typically, if you withdraw money from a 529 plan and need to put it back, you have

60 days from the date the