Author Topic: using 529 the first time...  (Read 1043 times)

purple monkey

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using 529 the first time...
« on: July 06, 2017, 11:37:26 AM »
So, we will withdraw money for 529 the first time.

What is the best way to do this, in your experience?

How are the taxes handled, do you prove the withdrawal, etc.?

Could not find answers.

Looking to the brilliant community to help.

TIA

catccc

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Re: using 529 the first time...
« Reply #1 on: July 06, 2017, 12:00:32 PM »
Sorry, I'm no help, I'm in the 529 accumulation phase.  Kids are 6 & 8.  But I am curious what other input people have on tips and pitfalls.

Here's a basic article about it:
http://www.consumerreports.org/money/how-to-withdraw-money-from-a-529-college-savings-plan/

It sounds like you need to hold on to proof that you used it for qualified expenses, but only in case the IRS asks for it.  Makes sense, just like most other tax related things, like charitable contributions... you say what you need to say on your tax return and hang on to proof in case the IRS comes a knockin' on your door.  Figuratively.  I'm sure they just send a letter or something.

Dee18

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Re: using 529 the first time...
« Reply #2 on: July 06, 2017, 09:06:40 PM »
My daughter's 529 is with Utah; I don't know if all accounts operate this way.  The process of using 529 funds has been absolutely smooth, with questions answered immediately over the phone.  I can choose to have money paid to me, to my daughter, or directly to her college.  I have linked the 529 account to my checking account and to my daughter's checking account.  I generally pay a qualified  expense (such as room and board) myself, and then request the money from the 529 via a simple online form.  The money is transferred to my checking account within a couple days.  If my daughter buys books, for example, I will ask that the reimbursement be paid to her checking account.

Because my daughter has a tuition scholarship, she can withdraw money from the 529 account (up to the amount of her scholarship)without having to use it for qualified  expenses.  She must, however, pay income tax on the portion of that withdrawal that was investment growth (as opposed to the money initially contributed to the account). Since her income is so low, she hasn't had to pay taxes at all. If I had waited until she graduated and then had her receive all the excess money, instead of spreading it out over 4 years, there would have been a tax bite. (Note that I am having her receive this money because  the 529 was a gift from her grandfather; if I had funded the account myself I would keep the excess)

PathtoFIRE

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Re: using 529 the first time...
« Reply #3 on: July 07, 2017, 08:31:21 AM »
Posting to follow, although I'm as far out as catccc in having to use.

I can't remember where I read it, but of the three options listed by Dee18, I thought the article I read discouraged having 529 deposits go to the child, as it could present some tax/gift issues. Again, I can't for the life of me remember where I read that, but I've since always kept in the back of my mind that I would plan on paying every expense myself and then reimburse from the 529.

Dee18

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Re: using 529 the first time...
« Reply #4 on: July 07, 2017, 09:17:15 AM »
The 529 people say clearly what amount is investment growth and what amount is original contribution on the statement I receive with a withdrawal.  i really recommend the Utah plan to anyone reading this who is just deciding where to set up a 529.