![]() ![]() So if you would otherwise qualify for the AOTC, you would want to withdraw $6,000 from the 529 account and pay $4,000 out of pocket. This means you cannot claim the AOTC (American Opportunity Tax Credit) or LLC (Lifetime Learning Credit) on expenses you’ve claimed with 529 assets.For example, if tuition were $10,000, and you withdrew the full $10,000 from your 529 account, you would not be able to claim the AOTC. No double-dipping – As a 529 account owner you cannot reimburse yourself for expenses already paid with tax-preferred funding.If the student does not qualify for federal aid, however, it’s usually better to take the withdrawals early for the same reasons as parent or student account owners. Grandparents may want to backload withdrawals, because disbursements from a grandparent-owned plan will count as income to the student for purposes of the FAFSA in the year in which the disbursement is taken. Withdrawals should be carefully timed to minimize or avoid their impact on the FAFSA. The future is uncertain, so taking those withdrawals early ensures that the funds do not go to waste should the student decide to drop out or transition to an alternate career path.However, if the account owner is a grandparent or third-party, there are decisions that need to be made. Withdraw the right amount – If the account owner is the parent or student, it is best to take the maximum of qualified withdrawals as early as possible.If grandpa and the parent both have 529 accounts, only one of them can claim the groceries as a qualified expense.īest Practices To Follow When Withdrawing Just be sure to keep accurate records in the event of an audit, as 529 plans are self-reporting, and to not make withdrawals from separate 529 accounts for the same expense. So long as the qualified expense was incurred by the listed beneficiary (the student) it can be reimbursed by the 529 plan. ![]() The assumption is that the parent is reimbursing the grandparent for the groceries. For example, if grandpa buys groceries for the same child, the parent can still make a withdrawal for the expense. For example, if a parent buys groceries for their child, who is a full-time student and dependent, the parent can withdraw funds from the 529 plan to reimburse themselves for the groceries. Most often this is direct school expenses like tuition and housing, but a qualified withdrawal can be made for any QHEE. For a more thorough description refer to the article, “What Can You Spend Your 529 Savings On?” which provides additional guidance regarding QHEEs.Īs a 529 account owner you are effectively reimbursing yourself for higher education expenses when making a withdrawal. There are a lot of footnotes to the aforementioned QHEEs, such as minimum attendance requirements. ![]()
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