529 Plan and College Savings

Archive for February, 2010

Question: What 529 Plan withdraw paper work needs to be filed to avoid taxes/penalties?

When withdrawing money from a 529 Plan, what paper work needs to be filed to confirm it was spent on educational expenses (to avoid taxes/penalties)? It probably varies between states, and if so, I’m specifically looking at Wisconsin.

Answer: You keep the records with your tax return. You do not file them, but have them ready if asked.

Keep in mind the item you generally can use is tuition and that’s already reported to the IRS. You need to keep the records for the room and board–even getting copies of the financial aid numbers if you also use that to calculate the non-taxable distribution.

Also, you can’t use the same tuition dollar for both an education credit as well as making the money in the 529 non-taxable. Many parents let some or all of the 529 earnings be taxable as the tax plus 10% penalty is much less than the loss in credit on their return.

Recovery: Education Credit – Parents (ASL, Captions & Voice Over) – June 09