Now would be a good time to review the terms, conditions, and procedures of your 529 plan. Not all plans are alike. So don't assume that the procedures your sister follows for her Iowa college savings plan will be the same for your Rhode Island college savings plan (or prepaid tuition plan). At a minimum, you should investigate the following issues.
First, bear in mind that you'll probably have to notify the 529 plan administrator that your child will be making a withdrawal for college expenses. In most prepaid tuition plans, the payout procedures are standardized. For example, some prepaid tuition plans require that all plan withdrawals must occur within 10 years of the time the beneficiary starts college. College savings plan procedures can differ considerably from plan to plan, though. No matter what your plan, consider the following questions:
- What education expenses does the plan consider "qualified"?
- When must you notify the plan administrator that you wish to withdraw funds from the plan?
- How do you document that the withdrawal has been used to pay qualified education expenses? How soon must you provide this documentation?
- Are college expenses paid directly from the plan to the educational institution, or is the beneficiary reimbursed for expenses? How long will reimbursement take?
- Is a minimum withdrawal amount required, or is there a limit on the number of withdrawals per semester?
- Does the state's definition of "eligible educational institution" differ from the federal definition, and does your child's college satisfy the definition?
- Does the plan require a minimum level of attendance (e.g., half-time enrollment) for qualified expenses other than room and board?
Second, make sure you understand how a qualified withdrawal from a 529 plan will affect your state income taxes. And remember--you're entitled only to the state tax benefits (if any) offered by the state in which you reside.
Third, explore how a withdrawal from a 529 plan will affect your child's eligibility for financial aid from the college as well as federal financial aid.
And finally, investigate how to coordinate a 529 plan withdrawal with the American Opportunity credit (Hope credit) and Lifetime Learning credit (which you may be able to claim on your federal income tax return) to maximize your income tax benefit. Although you may claim one of these education credits in the same year you withdraw funds from a 529 plan, your 529 plan withdrawal may not be completely tax free on your federal income tax return that year.
Note: Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing. More information about 529 plans is available in each issuer's official statement, which should be read carefully before investing. Also, before investing, consider whether your state offers a 529 plan that provides residents with favorable state tax benefits.
If you are investing in a 529 plan outside of your state of residence, you may lose available state tax benefits. Make sure you understand your state tax laws to get the most from your plan.
529 plans are subject to enrollment, maintenance, administration/management fees and expenses. 529 plans are subject to fluctuation in value and market rise, including loss of principal.
Investors should consider the investment objectives, risks, charges, and expenses of 529 plans carefully before purchasing. More information about 529 plans can be found in the issuer's official statement. Please read the official statement carefully before investing.
Please be advised that this materials is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transactions(s) or matter(s) addressed and you should seek advice based on your particular circumstances from an independent advisor.
Information provided has been prepared from sources and data we believe to be accurate, but we make no representation as to its accuracy or completeness. Data and information is not intended for solicitation or trading purposes. Please consult your tax and legal advisors regarding your individual situation. Neither AXA Equitable nor any of the data provided by AXA Equitable or its content providers, such as Broadridge Investor Communication Solutions, Inc., shall be liable for any errors or delays in the content, or for the actions taken in reliance therein. By accessing the AXA Equitable website, a user agrees to abide by the terms and conditions of the site including not redistributing the information found therein.
AXA Equitable Life Insurance Company (NY, NY). Securities are offered through AXA Advisors, LLC, NY, NY 212-314-4600 (member FINRA / SIPC). AXA Equitable and AXA Advisors are affiliated companies, do not provide legal or tax advice and are not affiliated with Broadridge Investor Communication Solutions, Inc.
© Copyright 2016 Broadridge Investor Communication Solutions, Inc. All rights reserved.
GE 119980 (10/2016)