Quick 529 College Plan Question

[TromboneAl]

I'm filling out the 529 plan distribution form. I can either have the money sent directly to the college, or to me first. Since the college tells me that sometimes there are problems when they receive the money directly (i.e. in allocating it to the correct account), I thought I'd have it sent to me, which is fine with Fidelity.

My question: Are there any tax problems in having it go to me first? Any additional paperwork?

Thanks,

 

[ESRBob]

Al,
You're the first person I've heard of who's actually taken money out of a 529 -- I was starting to think of them like IRAs, but of course, I'll be looking to withdraw 529 funds myself here in a couple years. I'll be interested to know what you find out.

 

[FinanceDude]

I'm filling out the 529 plan distribution form. I can either have the money sent directly to the college, or to me first. Since the college tells me that sometimes there are problems when they receive the money directly (i.e. in allocating it to the correct account), I thought I'd have it sent to me, which is fine with Fidelity.

My question: Are there any tax problems in having it go to me first? Any additional paperwork?

Thanks,

Not at all. Under current law, the distribution for covered educational expenses is state and federal tax free, so not a tax issue. The best thing to do is make a copy of the bill from the college saying what you have to pay, and keep that in your records so if the IRS does ever ask, you can match up the monies to the billed amount of covered expenses.

When I start taking 529 funds out, I'm not going to trust the college to pull the money.........I have had several clients do that, and the money got put into the general scholarship fund of the college...............

As with all things regarding the IRS, the onus is on the taxpayer to do the correct things and keep the appropriate records..........

There are some subtle differences in operational things like distributions depending on the adminstrator, so take advantage of the CSR to help you........

 

[TromboneAl]

Thanks, FD, that's the info I needed.