Tags: Retirement | withdrawal | 529 plan

What You Should Know Before Making a Withdrawal on Your 529 Plan

By    |   Monday, 27 Apr 2015 03:00 PM

For families ready to make withdrawals from their 529 plan, there are some important things to remember. Qualified expenses fall into four big categories and any non-qualified withdrawal will garner big tax fines.

According to the IRS, the four qualified purchases on which 529 plan funds can be spent are:

1. Tuition and Fees: Any school program that can accept federal student aid is a qualified program for expenses. This includes vocational schools, technical schools and some certification programs along with traditional colleges and universities.

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2. Books and supplies:
The purchase of computer equipment is a qualified expense. Internet access fees and printers also qualify, as well as educational software used by the beneficiary or the beneficiary's family during the years the beneficiary is enrolled in a qualified institution

3. Room and board: The amount here cannot exceed the actual amount charged for the student to live in the college or institution's student housing. Students must also be enrolled at least half-time in order to qualify for a room and board expense.

4. Special needs services:
A student with special needs can use 529 plan withdrawal cash for the cost of special services needed to attend school at a qualifying institution.

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There are two basic ways to make withdrawals. Some plan managers, like Fidelity Investments have special forms for withdrawals from a 529 Savings plan. They also allow an online banking type service for bill pay in any of the qualified areas.

Fidelity advises - that plan owners
are responsible for making sure their expenditures meet IRS regulations for acceptable expenses. Look for a 1099-Q form at tax time to confirm the withdrawal amount.

Another important withdrawal consideration for 529 plan funds is that any grants,
scholarships or other tax-free assistance for college, including Pell grants, VA benefits and anything offered through an employer will reduce the amount of 529 plan funds that will be eligible for the tax-free withdrawal. Essentially, those monies must be subtracted from expenses before figuring the total.

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For families ready to make withdrawals from their 529 plan, there are some important things to remember. Qualified expenses fall into four big categories and any non-qualified withdrawal will garner big tax fines.
withdrawal, 529 plan
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2015-00-27
Monday, 27 Apr 2015 03:00 PM
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