Investing money into a 529 plan can be an effective strategy to save for college. There are, however, some overlooked nuances related to some 529 plan distributions. And often times, those nuances are not addressed (or even discovered) until after the distribution has occurred and the client is stuck paying taxes unexpectedly.
To make the discussion with clients easier, we have created the “Is The Distribution From My 529 Plan Taxable?” flowchart. It covers some of the most common issues for clients who are planning to take a distribution from the 529 plan. This flowchart considers:
- What kinds of expenses qualify
- Tax impact if the expense is nonqualified
- Consideration if the beneficiary is disabled
- The formula for calculating Adjusted Qualified Education Expense (AQEE)
- Impact of American Opportunity Tax Credit and Lifetime Learning Tax Credit
- The formula for calculating the tax associated with any distribution (if applicable)
This article represents opinions of the authors and not those of their firm and are subject to change from time to time, and do not constitute a recommendation to purchase and sale any security nor to engage in any particular investment or legal strategy. The information contained here has been obtained from sources believed to be reliable but cannot be guaranteed for accuracy.