Investing in a 529 plan is a smart way to save for college expenses, offering tax advantages that help make funding education more affordable. However, there are many rules specific to 529 plan distributions that investors often overlook that can eliminate the tax advantages of the plan if not followed. The nuances of these rules often come to light only after a distribution has been made, sometimes resulting in unexpected federal tax liabilities.

To help our clients navigate the 529 plan distribution rules, we have developed the “Is the Distribution From My 529 Subject To Federal Income Tax?” flowchart. This tool addresses common questions and scenarios when planning for a 529 distribution, including:

• Which expenses qualify for tax-free withdrawals
• The tax consequences of non-qualified expenses
• Special considerations if the beneficiary is disabled
• How to calculate Adjusted Qualified Education Expenses (AQEE)
• How claiming education tax credits such as the American Opportunity Tax Credit and Lifetime Learning Credit can affect the taxability of distributions
• How to determine the tax owed on any taxable portion of a distribution

Our goal is to provide clarity and confidence when managing 529 plan withdrawals, helping you avoid surprises and make the most of your education savings.

Is the Distribution From My 529 Subject To Federal Income Tax?

While checklists and flowcharts can help you identify different opportunities, we are always available to meet with you to discuss your financial needs and goals, and help to identify what the best opportunities are for you.

 

This content is provided by Windward Private Wealth Management Inc. (“Windward” or the “Firm”) for informational purposes only. Investing involves the risk of loss and investors should be prepared to bear potential losses. No portion of this blog is to be construed as a solicitation to buy or sell a security or the provision of personalized investment, tax or legal advice. Certain information contained in the individual blog posts will be derived from sources that Windward believes to be reliable; however, the Firm does not guarantee the accuracy or timeliness of such information and assumes no liability for any resulting damages.

Windward is an SEC registered investment adviser. The Firm may only provide services in those states in which it is notice filed or qualifies for a corresponding exemption from such requirements. For information about Windward’s registration status and business operations, please consult the Firm’s Form ADV disclosure documents, the most recent versions of which are available on the SEC’s Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov.