- Qualified withdrawals are tax free. “Qualified” withdrawals are those you use to pay for college education expenses such as tuition, fees, books, supplies and equipment. Be aware that some withdrawals may be taxable, such as when the account beneficiary receives a scholarship or other tax-free assistance that offsets the expenses. In addition, you must coordinate 529 withdrawals with Hope and Lifetime Learning credits, as well as distributions from Coverdell education savings accounts. These rules prevent the use of the same expenses to obtain multiple tax benefits.
- Non-tax implications may affect timing of withdrawals. Financial aid may play a role in when you take money from your 529 account. For example, when grandparents own a 529 plan, withdrawals to pay for a student-grandchild’s college costs may affect the amount of income the grandchild must report on a federal financial aid form.
If you have questions or need help calculating 529 plan withdrawals, please give us a call.
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