Qualified tuition programs or more popularly known as 529 college savings plan is a special program where the state or an educational institution help families set aside money so their children can avail of them when they get to college.
There are two kinds of 529 college savings fund - savings and prepaid. In the savings plan, you can invest your contributions in different types of investment options, like a mutual fund. A pre-paid plan, as the name suggests, lets you prepay part or all of the cost of a public college education. However, you also have the option to use it in a privately owned college.
Aside from these facts, you have several options how to withdraw your 529 college savings plan. You can issue the check to yourself, the beneficiary, or to the college institution where the beneficiary is going. Another important thing you have to keep in mind is that you cannot keep any portion of this plan to yourself. Rather, all the money goes to the beneficiary for his or her college tuition.
The second important thing you have to know about a 529 college savings plan is that you need to have a Form 1099-Q filed on February of the next year after you withdraw it. The form should go to whoever the check is issued to.
Because you have to file a Form 1099-Q for the withdrawal of your 529 college savings plan, some of its earnings might be taxable. Even if the cost of college in a certain year increase but the earnings of the withdrawal exceed the adjusted amount of qualified education expenses, the IRS will still get money from it.
However, you can benefit from the tax-free withdrawal of your 529 college savings plan. You can do that by making yourself as the account beneficiary, get the tax-free withdrawals, and fund your own education if you have plans to pursue it.
