With less than a week before the tax filing deadline, many parents are still trying to figure out how their children’s college saving fund or 529 plan is taken into account with Uncle Sam. Federal vs State? Contributions vs Withdrawals? How do you account for these questions and more?
A recent US News and World Report Education article by Deborah Ziff asks experts the tricky questions when it comes to preparing your taxes with college savings plans in mind. College Application Training founder and CEO Chelsea Watkins was asked by Ziff about 529 withdrawals and what qualifies as an educational expense. “The main issue is what counts as a qualified educational expense,” she says. “That’s the key. You really have to check before you make a distribution. … Otherwise you are going to be hit with taxes and penalties.” 529 plans have been a growing topic of debate when it comes to adequately funding a student’s college expenses because of the limitations and vulnerability to a fluctuating stock market.
You can read the full article here from Deborah Ziff and get more expert answers to your tax questions, like how 529 plans can effect federal and state taxes differently.