You can take a nonqualified withdrawal from a 529 account up to the amount of a scholarship; although you will pay taxes on the earnings, you won’t pay the additional 10% penalty that’s imposed on a nonqualified withdrawal. Remember to ask for a scholarship receipt for your tax records.
Can you withdraw 529 contributions without penalty?
529 plans are a way to pay educational and, in some cases, vocational expenses, and you can even pay back student loans without paying taxes or a penalty on qualified withdrawals. You never pay taxes or a penalty for the portion of a distribution that represents your original contribution, no matter when you take it.
Can you withdraw money from a 529 savings plan?
Withdraw Funds Only for Qualified Expenses. You can use funds from a 529 account for a wide range of education-related expenses. That includes tuition, fees, books, supplies, and computers.
When are 529 plan distributions exempt from tax?
529 plan distributions are exempt from federal income tax when the funds are used to pay for qualified higher education expenses. This includes tuition, fees, books, supplies, special needs equipment, computers, internet access and room and board when the student is enrolled at least half time and pursuing a degree or certificate program.
What are the benefits of investing in a 529 plan?
These benefits vary depending on the state and the 529 plan. In addition, state and federal laws that affect 529 plans could change. You should make sure you understand the tax implications of investing in a 529 plan and consider whether to consult a tax adviser.
How often can funds be transferred to a 529 plan?
Funds may be transferred from one 529 plan to another 529 plan for the same beneficiary without federal tax consequences, as long as the rollover is completed within 60 days of the distribution. 529 plan rollovers can be completed once every 12 months for the same beneficiary.
