My son will be starting college next month. What documentation do I need to give to the company that administers the 529 plan to be able to withdraw the money tax-free for the college bills?
Different 529 plans have different withdrawal procedures, so you need to look at the instructions for your particular plan, says Joe Hurley, of SavingforCollege.com. The 529 administrator typically doesn’t ask for any documentation, but most plans do require you to indicate whether the expenses were “qualified” or “non-qualified” on the withdrawal form. “Qualified” expenses qualify for the tax break and include tuition, room and board, books, fees, supplies, and required equipment. See Using 529 Plan Funds to Pay Rent for more information about how to calculate the tax-free limit for room room-and and-board costs if your son lives in an off-campus apartment.
Come tax time, you'll get a 1099Q form from the plan reporting the distribution, and it's up to you to determine how much, if any, is taxable. (If all the money went for qualified expenses, it's all tax-free.) You should keep the documentation of the qualifying expenses in your tax files in case of an audit, suggests Hurley. Most 529 plans permit qualified withdrawals to either the account owner, the beneficiary or the school -- so you could withdraw the money yourself and then write a check to the school, or you may be able to pay the school with the 529 money directly.
Be careful about how much you withdraw from a 529 for college expenses if you also plan to take the American Opportunity or Lifetime Learning tax credits for the year – you can’t double dip on these tax breaks. See Take Advantage of Education Tax Breaks for details.
For more information about college costs, see our Paying for College special report. For more information about 529s and other college-savings accounts, see Smart Ways to Save for College. Also see our Find the Best 529 Plan tool.
As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.
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