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Understanding 529 Plan Distributions
Ever since your daughter was very young, you have invested in a state-operated 529 plan to help pay for her college education. Now she is ready to start using those funds. Do you know which educational expenses qualify for tax-free distribution from the plan, and which do not?
Here are a few guidelines, based on information in Publication 970 from the IRS, which gives detailed guidance on qualified expenses.
What's Not Covered
Note that expenses must apply to a qualified college, university or vocational school for postsecondary educational expenses. Withdrawals used for qualified expenses are generally free from federal income tax. Tax treatment at the state level may vary, and may depend on your residency status in that state.
Check before you spend funds from a 529 plan. Taxes and a possible 10 percent penalty apply to all distributions that are not considered qualified educational expenses by the IRS.
Contact Clifton Gunderson Wealth Advisors for college planning and investing assistance.
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