Most students are in the lowest tax brackets. Do you have other qualified expenses coming up? Will your child go on to grad school? The following conditions apply when you want to recontribute a college refund to a 529 plan: Recontribute the unused funds to a 529 plan within 60 days. Here are three important issues you’ll want to cover: I generally recommend that 529 account owners lock in their tax benefit by taking the maximum amount from their accounts that will qualify for tax-free treatment. Or if the withdrawal occurs in December for expenses previously paid during that year. Spend It or Save It Calculator. The most important thing to know about penalties and your 529 plan is that your principal can always be withdrawn without penalty. That's huge.". You can send funds directly to the college, add them to your own accounts for paying expenses or release the funds to your student (the beneficiary of the account). College Savings Plan Network. What Is an Eligible Educational Institution? As long as the beneficiary incurs sufficient qualified higher education expenses, the distribution remains tax-free to the account owner. They also avoid the risk that the school’s financial aid office will view the payment as some sort of scholarship, and reduce the student’s financial aid package accordingly. You’ll also be subject to income taxes on the gains and may even have to pay back any state income tax deductions you previously claimed. Connecticut Higher Education Trust. Of course, if income phase-outs prevent the taxpayer from claiming the AOTC, the $4,000 adjustment need not be made. If you remove funds for non-qualified expenses, then you’ll pay a 10% penalty on your gains. "529 Plan Advantages & Benefits," Accessed Nov. 13, 2019. So, should they send back the money as a rollover contribution? It's easy to put money into a 529 college savings plan, but withdrawing money from the account can be more complicated. Accessed Nov. 11, 2019. Similar to other TIAA-managed 529 savings programs, the Connecticut Higher Education Trust (CHET) features three age-based options along with eight static investment options. This form is specifically for 529 plan spending and ensures your taxes are calculated accurately, and you are not subject to penalties. The 529 plan manager or custodian will complete this form and send the student, parent, and IRS a copy. Many plans require that the college be paid directly for education expenses; others will prepay or reimburse the beneficiary for such expenses (receipts or other proof may be required). Call toll-free 1-888-799-CHET (1-888-799-2438) P.O. CHET is open for investment by residents in any state. Consumer Reports explains how to withdraw money from a 529. The 529 plan custodian has no way of knowing whether this distribution is qualified or non-qualified, so none of that information is included on the 1099-Q. 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. Department of Treasury. All Rights Reserved 444 Brickell Avenue, Suite 820 Miami, FL 33131 Phone: (585) 286-5426, 529 Savings Calculator for Private K-12 Tuition, Revised Pay As You Earn Repayment Calculator. Both tuition and fees for full and part-time students can be paid with 529 plans. Treasurer Shawn T. Wooden is Trustee of CHET. 529 plan withdrawal penalty. So, there would be no point in contributing and withdrawing immediately unless your state happens to have a 529 deduction. IRS. Retirement Planning Calculator. IRS. For this reason, we may request additional information from you during log in. Section 529 and Coverdell Account Sunset Provisions. Accessed Nov. 11, 2019. The state of Connecticut offers 529 plans via the Connecticut Higher Education Trust. The withdrawals from a CHET 529 plan are tax-free at both the federal and state level, as long as they're used for qualified higher education expenses. Should I Use a Coverdell or 529 for My Child’s Education? If your clients’ children are heading to college soon, it’s time to start considering 529 withdrawal strategies. Phone 800.418.2551. You’ll still have to pay income taxes on gains in these circumstances unless you pay for a qualified expense. "About Form 1099-Q, Payments from Qualified Education Programs (Under Sections 529 and 530)," Accessed Nov. 13, 2019. Should You Use 529 Plan Money to Pay the Cost of Studying Abroad? 529 plan assets are counted at different rates for the Expected Family Contribution (EFC) in the FAFSA formula. U.S. Securities and Exchange Commission. Copyright Ⓒ 2020 Saving for College, LLC. Most 529 plans let the account owners decide how they want their withdrawals to be paid out. 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