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529 Savings Withdrawals

Published by Dave Danic on 29 Sep 2017

You’ve been saving for your child’s college education since birth and now your child is all grown up and ready to go off to college. Now it's time to make a withdrawal from that 529 account to pay those tuition bills. There are rules that you need to follow in order to keep your withdrawals tax free. There are 3 different types of 529 plan withdrawals.

* Qualified withdrawals. No matter what the age of the account beneficiary is, you can withdraw this money generally tax and penalty free from the account to pay for education expenses. The expenses would include:piggy_bank_graduation_2486 - Copy.png

** Books and supplies

** Equipment (computer, software, etc.)

** Tuition and fees

Note: There are rules in place to prevent the use of the same expenses to receive multiple tax benefits. For instance; when an account beneficiary receives tax-free assistance, such as a scholarship, a portion of the distribution may be taxable. Also, your 529 distribution must be coordinated with the American Opportunity Credit (AOC), Lifetime Learning Credit (LLC), and distributions from Coverdell Education Savings Accounts (CESA).

* Non-qualified withdrawals. When the “earnings” portion of a withdrawal is used for anything other than a qualified education expense, the earnings are taxable. Unless an exception applies, you will owe a 10% penalty on the earnings.

* Rollovers. You can rollover or deposit withdrawals into the 529 plan of a family member, or an account that you are a beneficiary. It is not taxable if the rollover is completed within 60 days after the initial distribution is taken.

For more tips contact our office at (260) 497-9761 to schedule an appointment with our advisors. At Summit CPA we offer multiple resources to assist you will all of your financial needs.

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