“529” Plans – Keep Your Receipts

A client recently asked me how to make sure that money moved from a 529 college savings account to a student’s checking account would be viewed from an IRS perspective.  What do you need to know if you take money from a 529 plan and put it in your, or the student’s checking account?

The answer can be found on the American Funds website.  Virginia’s 529 plan offers the American Funds and is known as CollegeAmerica.  Here are their answers:

Q: What is considered a qualified higher education expense?

A: Qualified higher education expenses generally include:

  • tuition
  • mandatory fees
  • textbooks, supplies and required equipment
  • room and board during any academic period during which the beneficiary is enrolled at least half-time in a degree, certificate or other program that leads to a recognized educational credential awarded by an eligible educational institution
  • special needs services for a beneficiary with special needs

Paying off a student loan is NOT considered a qualified expense.

Q: Who is responsible for determining that a withdrawal was made for qualified higher education expenses?

A: The account owner or the beneficiary makes the determination and must retain appropriate documentation to show that a withdrawal was made for qualified higher education expenses.

Q: Can my withdrawal be sent to my bank account?

A: Yes. You can have a withdrawal transferred to the checking or savings account linked to the CollegeAmerica account. This transaction may take place online, over the phone, or by mailing us a completed CollegeAmerica Distribution Request Form (PDF). Direct deposit withdrawals requested online are limited to $25,000 per day. Payments will be deposited into your bank account within three business days of the transaction date. Use the FundsLink® form (PDF) to link a bank account. A signature guarantee may be required.

Q: Can my withdrawal be sent to an educational institution?

A: Yes. You can call us to redeem up to $125,000 per day from a CollegeAmerica account and have the money sent directly to an eligible educational institution. We’ll need the name and address of the institution when you call.

Q: When making a withdrawal from my CollegeAmerica account, will it be reported under the Social Security number of the account owner or of the beneficiary for tax purposes? 

A: It depends on to whom the distribution is made payable. If the withdrawal is made payable to the account owner, then the tax reporting will be under the account owner’s Social Security number. If withdrawals are made payable to the account beneficiary or to the school, then the tax reporting will be under the beneficiary’s Social Security number.

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