Can I redeposit a 529 withdrawal?

Yes, account owners have 60 days from the date of the refund to redeposit the 529 funds and avoid paying taxes or penalties on those funds.

What happens to my 529 if I get a scholarship?

If your child receives a scholarship, you may withdraw that exact amount from a 529 plan and use it for anything without incurring a penalty on earnings, but you must pay taxes on the earnings. The timing of penalty-free earnings withdrawals is the subject of debate among tax experts.

How do I Recontribute my 529 refund?

Include a letter with the account number, student beneficiary, and date and amount of the original withdrawal. Include an explicit statement that you are making a recontribution of a qualified withdrawal. State that the recontribution is being made within 60 days of the refund.

What if I withdraw too much from 529?

Taking too much money You or your beneficiary — you get to choose who receives the money — will have to report taxable income and pay a 10% federal penalty tax on the earnings portion of the non-qualified distribution. The principal portion of your 529 withdrawal is not subject to tax or penalty.

What is a qualified withdrawal from a 529 plan?

You can withdraw 529 plan savings tax-free to pay for qualified education expenses, which include costs required for the enrollment and attendance at in-state, out-of-state, public and private colleges, universities or other eligible post-secondary educational institution.

Is the 529 penalty really that bad?

If you don’t use your college savings plan for eligible expenses, your 529 plan nonqualified withdrawals may incur a 10 percent penalty and will also be subject to income taxes. That said, both the penalty and the taxes apply only to your gains in the account.

Who pays the tax on non-qualified 529 distributions?

The recipient of the non-qualified distribution pays the taxes on the distribution. For example, if a parent takes a non-qualified distribution from the 529 plan to pay for travel costs, the parent will pay the taxes if the check from the 529 plan is in the parent’s name.

Do 529 withdrawals count as income?

You do not report the distributions as income. However, if you accidentally use the funds on ineligible expenses or make a withdrawal, the 529 distribution may be subject to a penalty fee and taxes.

What is the max yearly contribution to a 529?

This includes 529 Savings Plan contributions. In 2018, an individual can give an annual gift of up to $15,000 to a person without paying taxes. If the gift exceeds $15,000, then the donor (not the gift recipient) may be required to pay taxes on the gift amount. For a married couple, this amount doubles.