EXISTING USER- LOGIN FORGOT usernameUpper. In theory, this should not matter. You’ll still have to pay income taxes on gains in these circumstances unless you pay for a qualified expense. Planning. Towards year-end, 529 account owners should sit down and figure out exactly how much was spent on qualified expenses during the year and make the appropriate “catch-up” distribution from the 529 plan. They typically have three options: (1) a check made out to the account owner, (2) a check made out to the account beneficiary, or (3) a check made out to the educational institution (or jointly to the institution and the beneficiary). For example, let's say you have a 529 plan with $20,000 of contributions and $5,000 of earnings, for a total of $25,000. Withdrawing in the right way, and for the proper expenses, is critical if you want to make the most of the funds you’ve invested. Would it be subject to penalty? So, should they send back the money as a rollover contribution? They can be used for some room and board costs, fees, books, and other supplies such as computers, printers, and Internet and technology fees. Taking too much money. Your 529 plan has specific rules for spending in return for those 529 tax benefits and other advantages. The money that grows over time is subject to penalties, though. The earnings portion of 529 plan withdrawals must be used for qualified higher education expenses to maintain their tax-free status and avoid a 10 percent tax penalty. Our Rating i x. 3. In many cases, a better strategy is available that will allow you to keep more of the funds you’ve worked so hard to accumulate. And recent tax laws give you even more options. Just don’t wait until the last day of the year to go through this exercise. The Connecticut Higher Education Trust (CHET) can help you meet your goals and maximize your savings. Another reason for wanting to have the Form 1099-Q go to the beneficiary is because a portion of the distribution may end up being non-qualified, and therefore reportable. 529 plan assets are counted at different rates for the Expected Family Contribution (EFC) in the FAFSA formula. A 529 plan allows you to save and grow tax-free money for someone’s education, including your own. Getty. The Biggest 529 Withdrawal Mistake To Avoid. CHET deduction or (2) making the deduction subject to recapture (i.e., repayment) if the CHET withdrawals are used for purposes other than paying higher education expenses. Program Manager. At the end of 2015, congress passed and the president signed a bipartisan bill called the ABLE Act that expands the current 529 college savings program to allow tax-free accounts to be used for children with a disability. Past performance is not indicative of future results. You’ve saved up for your kid's college for years, and the big day is finally here. Do Not Pay Taxes on Unused 529 Plan Money: Transfer It Instead, Withdrawing in the right way, and for the proper expenses, Investor Bulletin: 10 Questions to Consider Before Opening a 529 Account, About Form 1099-Q, Payments from Qualified Education Programs (Under Sections 529 and 530), There is a difference between qualified vs. non-qualified expenses, There are strategies or exceptions to allow non-qualified withdrawals without penalty, There are impacts in making a non-qualified withdrawal, The student beneficiary receives a scholarship, The student beneficiary enrolls in a U.S. service academy. Plans allows investments to grow, tax-deferred, until they are withdrawn in January for expenses that are paid! States are expected to start chet 529 withdrawal 529 withdrawal away from the account may. And each of their siblings occurs in December for chet 529 withdrawal previously paid during that year need a Form. 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