If your child is heading to law, medical, or grad school, your 529 savings can usually be used for these expenses, too. California imposes an additional 2.5% state tax penalty on the earnings portion of non-qualified 529 plan distributions. Saving for college? Whether you live on campus or off, you can use your 529 plan spending for your room and board expenses. Once you know how much you need, you need to decide who gets the funds. For most parents, it will be 100% of the beneficiary’s qualified higher education expenses paid this year—tuition, fees, books, supplies, equipment, and room and board—less $4,000. Most 529 plans let the account owners decide how they want their withdrawals to be paid out. The Connecticut Higher Education Trust (CHET) can help you meet your goals and maximize your savings. If the check goes to the account owner, the Form 1099-Q goes out under the account owner’s social security number. 8. Contributions to a 529 plan are not deductible at the federal level, the tax advantage is that earnings in a 529 are not taxed if used for qualified education expenses. 529 plan assets are counted at different rates for the Expected Family Contribution (EFC) in the FAFSA formula. Connecticut has two 529 plan options - one consumer plan and one plan that is sold by financial advisors (we're big advocates of doing-it-yourself, you don't need to pay a financial advisor for this). Call toll-free 1-888-799-CHET (1-888-799-2438) P.O. Is This Myth Going to Cost You Thousands for College? The most important thing to know about penalties and your 529 plan is that your principal can always be withdrawn without penalty. Savingforcollege.com is an unbiased, independent resource for parents and financial professionals, providing them with information and tools to understand the benefits of 529 college savings plans and how to meet the challenge of increasing college costs. The Tax Benefits of New York's 529 College Savings Program. 529 plan withdrawal penalty. About 5.5% of withdrawals for beneficiaries 16 and under were made in 2018, up 4% from 2016, according to Ascensus, which administers 529 plans for 20 states and the District of Columbia. Most students are in the lowest tax brackets. (See the discussion above concerning the expense adjustment for the AOTC.) 529 plans offer the potential of higher returns and tax-advantaged growth compared with lower-yielding bank accounts.² In fact, if you consider saving $200 per month in a bank account versus investing that same amount in a 529 plan, you could be leaving a lot of money on the table over the course of 18 years. Connecticut Higher Education Trust: To help families save for college, the State of Connecticut offers the Connecticut Higher Education Trust (CHET), Connecticut’s 529 College Savings Plan. Traditional vs. Roth 401(k)/403(b) Analyzer. Another reason for wanting to have the Form 1099-Q go to the beneficiary is because a portion of the distribution may end up being non-qualified, and therefore reportable. Except for the FDIC-insured option, my529 investments aren’t guaranteed. Take withdrawals in the same calendar year that the qualified expenses were paid. Paying for rent, books, and supplies would be a better option for these funds and won’t subject you to a penalty. A 529 plan can be a great tool to save for the college expenses of a child or other loved one. They can be used for some room and board costs, fees, books, and other supplies such as computers, printers, and Internet and technology fees. Can you just withdraw from the principal? See What We Offer . IRS. Getty. For CHET Advisor sales material, please see Forms & Literature. Growth Potential. EXISTING USER- LOGIN FORGOT usernameUpper. Save any bills, receipts, and documentation for tax time. 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. Designating the distributee. Devices you need to navigate campus or attend class, participate in or listen to lectures are covered by 529 plan funds. By contrast, the Virginia 529 program so far has seen about 800 accounts opened for K-12 expenses, or just 1.6% of the 50,000 new accounts that open on average each year, Morris said. Should I Use a Coverdell or 529 for My Child’s Education? Learn more about the types of costs 529 plans can help fund. If the beneficiary or account owner of a 529 plan receives a refund of qualified higher education expenses from the college or university that were paid for with a 529 plan distribution, the refund can be recontributed to the 529 plan within 60 days of the date of the refund without having to pay any taxes and penalties on the distribution. 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. If you remove funds for non-qualified expenses, then you’ll pay a 10% penalty on your gains. Once the funds are released, you’ll need a completed Form 1099-Q from the IRS. While transportation is usually not covered, if you have special needs, your transportation needs may be covered expenses. 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. It was super easy for me to compare my client's current plan to the 529 I would recommend and show him that he can save almost $10,000 in fees over the next 14 years. However, the CHET statutes specify that the program is used only to “promote and enhance the affordability and accessibility of higher education for . You can spend the money you’ve saved on expenses directly related to your education costs, including:. Why go through this process if you can avoid it by ensuring the Form 1099-Q goes to the beneficiary? Will your child go on to grad school? Fax 800.214.2956. The Connecticut Higher Education Trust (CHET) is the name of Connecticut's 529 Plan. Withdrawals from a 529 plan that are used to pay qualified higher education expenses are completely free from federal income tax and may also be exempt from state income tax. They … Paying for Off-Campus Housing with a 529 Plan Your student's room and board could be covered tax-free for an entire 12-month lease, even if he or … Or if the withdrawal occurs in December for expenses previously paid during that year. 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. Program type Savings; Inception 1997; State agency. CHET is open for investment by residents in any state. Treasurer Shawn T. Wooden is Trustee of CHET. Your 529 savings are designed for college, but some expenditures do not qualify even if they relate to your time in school or your coursework. 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