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• #Taxes on 529 withdrawals plus

It’s also important to document your spending for at least three years, in case the IRS asks for proof of your qualified withdrawals. Make sure that you withdraw and spend the money withdrawn in the same calendar year, not academic year otherwise, you will have mismatched reporting with the IRS, and your withdrawals, even for qualified education expenses, may be subject to tax and penalties. The timing of your withdrawals is also important. The Education Plan – New Mexico’s 529 College Savings Plan option – can send a check to the institution, to the account beneficiary, or to the account owner. Check with your child’s institution to see if you can make automatic payments from the 529 account directly to the school. Be aware of deadlines for the most pressing items such as tuition, as there may be temporary withdrawal restrictions. To do so, submit a withdrawal request by logging into your account online or filling out this form.

You want to avoid “double-dipping” your tax breaks.Īfter this step, it’s time to make the withdrawal. Subtract any tax-free money your child has received, such as scholarships, Pell Grants, employer or veteran’s educational assistance, as well as any federal tax credits such as credits from the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Tax Credit (LLTC). Rules for Withdrawalsīefore you start withdrawing funds, add up all your expenses and rule out those that are not qualified education expenses.

#Taxes on 529 withdrawals plus

Withdrawals for non-qualified expenses– including transportation, cell phones, and fees for sports or clubs – are subject to tax, plus a 10% penalty, so make sure you are using the funds correctly.

These include items such as tuition and fees, room and board, textbooks and lab fees, special needs equipment, some study abroad programs, and technology required for course work. With a 529 education savings account, you may make withdrawals from the beneficiary’s account for higher education expenses at any time and in whatever amount you decide however, withdrawals must be for “ qualified education expenses”. Here are guidelines for making a withdrawal from your 529 account with The Education Plan®. Fortunately, if you have a 529 education savings account, those bills won’t be so hard to stomach: you’ll have funds to draw on from years of investing for this very reason. August is typically the month when students begin returning to college, or attending for the first time.