Since most non-qualified withdrawals are penalized, you should only do so after carefully examining all your options. The following list describes some of the provisions regarding these college savings plans set to revert to older law on January 1, 2011. Saving for College. (See the discussion above concerning the expense adjustment for the AOTC.) 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. Say a parent takes a $10,000 distribution from a 529 plan, paid directly to then university, then the university refunds $1,500 because the student had to move out of dorm and couldn’t use the meal plan due to coronavirus. Treasurer Shawn T. Wooden is Trustee of CHET. 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. CollegeAmerica 529 Plans. Is This Myth Going to Cost You Thousands for College? It doesn’t matter if funds are withdrawn in January for expenses that are not paid until August. Consumer Reports explains how to withdraw money from a 529. Getty. Should I Use a Coverdell or 529 for My Child’s Education? The following forms are specifically for CHET Advisor plans. Instead, the burden of calculating qualified education expenses and thus calculating the taxable and non-taxable portions of the 529 distribution is solely the responsibility of the tax payer. Tax deduction. 8. If you take a non-qualified distribution from your 529 plan, the penalties are two-fold. Will your child go on to grad school? Just make sure they match up within the same calendar year. null. Just don’t wait until the last day of the year to go through this exercise. If the account owner neglects to make the $4,000 adjustment and withdraws 529 money equivalent to 100% of eligible expenses, the likely result is a $4,000 non-qualified distribution from the 529 plan. CHET Baby Scholars Program. You’ve saved up for your kid's college for years, and the big day is finally here. Are There Disadvantages of 529 Plans for College? However, you will not be taxed on the distribution as the funds were used to pay for qualifying education expenses. Connecticut Higher Education Trust. If your child is heading to law, medical, or grad school, your 529 savings can usually be used for these expenses, too. Saving for college via 529 plans allows investments to grow, tax-deferred, until they are withdrawn for use. First, you have to include the earnings portion of the distribution as taxable income. Going to Cost you Thousands for college used to pay for qualifying Education expenses a 529 saving for college 529! 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