CHET Advisor is administered by the Treasurer of the State of Connecticut as the Trustee of the Connecticut Higher Education Trust Program, and Hartford Funds Management Company, LLC serves as Plan manager. Save any bills, receipts, and documentation for tax time. If the account owner tells me they would prefer to withdraw less than the maximum amount this year so they can spread the money over the college years, I will suggest they still withdraw the maximum, and follow it up by making new contributions into the 529. Successor Account Owner information (Optional, but recommended). As part of this process, determine if the AOTC is maximized by paying second semester college bills in December versus January. Copyright Ⓒ 2020 Saving for College, LLC. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Withdrawing in the right way, and for the proper expenses, is critical if you want to make the most of the funds you’ve invested. CHET ADVISOR AN ADVISOR-SOLD PLAN MANAGED BY THE HARTFORD 529 College Savings Program Connecticut Higher Education Trust. It's easy to put money into a 529 college savings plan, but withdrawing money from the account can be more complicated. When you pay qualified education expenses from a 529 account, your withdrawals are tax- and penalty-free. Once you know how much you need, you need to decide who gets the funds. The individual noted as the recipient on the 1099-Q is responsible for either demonstrating that the funds were qualified distributions or including the distributions on his or her tax return and paying any necessary tax or penalty. Are you sure you want to cancel this transaction? Consumer Reports explains how to withdraw money from a 529. It’s time to withdraw from your 529 Savings Plan. While there is no direct guidance from the IRS, many tax experts believe the distribution and the scholarship do not have to match up in the same calendar year when applying the penalty waiver. The $4,000 is redirected to the American Opportunity Tax Credit (AOTC), which based on a formula is worth up to $2,500 in federal tax savings. Devices you need to navigate campus or attend class, participate in or listen to lectures are covered by 529 plan funds. ES_CHET_EN_091901 1019 — Page 3 of 12 3 of 12 NT STAPE 4. If you remove funds for non-qualified expenses, then you’ll pay a 10% penalty on your gains. While 529 withdrawal rules are fixed, there are ways to make non-qualified withdrawals without getting hit with that 10% penalty; these include: . "About Form 1099-Q, Payments from Qualified Education Programs (Under Sections 529 and 530)," Accessed Nov. 13, 2019. The amount of qualified expenses you may be able to use Section 529 plan distributions to pay for is limited if you fall into any of these categories: If your qualifying student receives tax-free educational assistance (outright grants and scholarships), the amount of expenses that would otherwise qualify will be reduced by the amount of the tax-free aid. IRS. Here are six mistakes you’ll want to avoid: 1. Since it is usually best that the Form 1099-Q be issued to the beneficiary, and show the beneficiary’s social security number, I prefer to use either option (2) or (3). I see the advantage here as being better control over the flow of funds. Treasurer Shawn T. Wooden is Trustee of CHET. ORIGINAL POST: 08/28/18; UPDATED 06/18/18, Take it to the next level: Get the knowledge you need to address your client's college planning concerns with a Premium Subscription to Savingforcollege.com, "This tool is great. 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