Timing Is Everything
You only get the tax break on 529 withdrawals if they match the amount of "qualified education expenses" in the same year.
If you withdraw money in December and pay the tuition bill in January, you may not have enough qualified expenses, and the excess distribution could be taxed and penalized.
Tax-free assistance like scholarships must be deducted from the expenses incurred.
What was paid for also matters. Tuition and books are fine, but computers do not count unless the school requires them.
Other costs not covered? Transportation and repayment of student loans.
Bottom line: Do not just call the 529 plan and tell them to send money to the school.
"It's very important to have a 529 withdrawal plan before you withdraw any money," Fox said. "You need to know all the ins and outs and how they will affect you."