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529 College Savings Plan Withdrawal Rules

Published by Dave Danic on 11 Aug 2017

After years of saving for your child’s college, it’s time to withdraw some of it to pay for tuition. However, to keep your withdrawals tax free, there are rules you must follow. Here are 3 types of withdrawals for your 529 savings plan.

* Qualified withdrawals. Withdrawals are generally tax and penalty free, no matter the age of the account beneficiary, as long as the distribution is used for education expenses such as; tuition, books, supplies, graduation_cash_2494 - Copy.pngand fees.

*** Be aware: Some of your plan distribution may be taxable if the account beneficiary gets tax free assistance, for example, a scholarship. The 529 distributions must also be coordinated with the American Opportunity Credit (AOC), the Lifetime Learning Credit (LLC), and any distributions from Coverdell education savings accounts. This rule is in place to prevent multiple tax benefits using the same expenses.

* Non-qualified withdrawals. Education expenses are taxable when the “earnings” portion of withdrawals are used for things other than qualified expenses. Unless an exception applies, this may result in a 10% penalty.

* Rollover. In an account that you are the beneficiary, you can rollover or deposit withdrawals in the account of a family member. The deposit or rollover is not taxable if completed within 60 days after the initial distribution.

If you need assistance with your 529 withdrawal calculations, contact our office at (260) 497-9761 to schedule an appointment with our Virtual CFO.

                                                           WE SPECIALIZE IN VIRTUAL CFO SERVICES

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