How to report 529 withdrawals on your taxesSubmitted by Prosperity Advisory Group on March 14th, 2019
by Joel Morrison, CFP®, CFS®
The great thing about 529 plans is that the withdrawals you make to pay for qualified education expenses come out tax free! But how to tell that to the IRS when tax time rolls around?
When a 529 has sent out a distribution to either the school or the beneficiary of the 529, they will send a 1099-Q at the end of that year. The burden is unfortunately on you to determine and calculate what portion out of that distribution is taxable. Hopefully none of it is, if you have only used it for qualified education expenses. Here’s a link to a resource that explains what those are.
The other document you may receive is a 1098-T. This one is issued from the school and it lists the amount paid for tuition and fees. This form is needed to help determine whether the student qualifies for things like the American Opportunity Tax Credit or the Lifetime Learning Tax Credit.
Source: Savings for College
*Before investing, the investor should consider whether the investor's or beneficiary's home state offers any state tax or other benefits available only from that state's 529 Plan. For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisors LLC nor any of its representatives may give legal or tax advice.