529 Account distributions and completing tax forms

swimcatsmom
Fri, 11 Mar 2011 10:22:44 +0000

The earnings portion is *not *taxable if it was used to pay for qualified education expenses. For 529 account purposes qualified expenses include tuition and fees, books, room and board, and for 2010 (and I think 2011) certain computer and internet expenses. If a student is on campus the room and board is the actual room and board charge. For off campus students it is based on the school’s COA.

The relevant IRS publication is IRS970. Make sure you are looking at the rules for 529 accounts -(I think they call them qualified education plans) as the qualified expenses vary from one tax benefit to another. For instance room and board is allowed for 529 accounts, but not for the tax credits.

I was also reading something the other day about how you can elect to pay taxes on the 529 withdrawal if you want to use the same expense for a tax credit. I think it said you would pay the tax but not the penalty. (But I may have dreamt that!!)