This delay means that the $30,000 withdrawal will count against your 2020 expenses. But instead of paying the bill right away, you wait until January 2020 to make the tuition payment. Otherwise, what would normally have been a qualified tax-free expense could become a penalized non-qualified one.įor example, let’s say you withdrew $30,000 from your 529 in November 2019 to cover your child’s tuition bill for the 2019-2020 school year. Non-qualified withdrawals are typically incurred by either withdrawing more than the adjusted QHEE or by using the funds for non-qualified expenses (like renting a more expensive off-campus apartment or buying a roundtrip ticket for spring break).Īll 529 accounts require you to request funds in the same calendar year that the qualified expense occurs in. ![]() However, the earnings on a non-qualified withdrawal are classified as taxable income - plus you could pay an additional 10% federal penalty tax on those earnings as well. If you do make a non-qualified withdrawal, the principal portion of the disbursement (that portion which you contributed yourself) won’t be taxed. Making only qualified withdrawals allows you to stretch every dollar of your college savings fund. Non-qualified withdrawals are not tax free. Any further withdrawals beyond that adjusted QHEE are referred to as “non-qualified withdrawals,” which are subject to tax and penalties. The school’s adjusted QHEE is the maximum amount you can withdraw, tax free, from your 529 for that year. The difference tells you how much you can withdraw from your 529 for that year, which is called your adjusted qualified higher education expenses (QHEE). Take the COA and subtract any grants, scholarships, and other tax-free assistance your child received. The school’s COA helps determine how much you can withdraw from your 529 for that year. ![]() For instance, is your child paying in-state or out-of-state tuition? Are they living on campus, off campus, or commuting? These variables will impact your child’s cost of attending that school. Keep in mind that a school’s COA adjusts each year and can vary depending on a few factors. You can find this information posted on the school’s website. The sum of all qualified expenses for the academic year is referred to as the school’s cost of attendance (COA). ![]() Room and board (if your child is enrolled on at least a half-time basis).Now, you can also use 529 funds to cover expenses for private elementary, middle, and high school tuition.Īll withdrawals for education-related expenses are tax free, as long as they are “qualified expenses.” Some examples of qualified expenses include: Prior to 2018, those expenses were limited to college or other secondary schooling. All 529 funds must be used to help pay for education expenses.
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