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529 Plan question

Technical topics regarding tax preparation.
23-Apr-2014 12:01pm
san diego ca
Daughter, beneficiary of 529 plan, pays tuition at an accredited university. Parent takes a distribution from the 529 Plan, and reimburses daughter. No problem with this being a qualified distribution, non-taxable. Correct?

Also, do earnings come out first when making distributions? Can't find anything about how this works. Will keep looking.

22-Apr-2014 7:17am
Oklahoma City
I dont have authority for either of these answers but this is how I think it plays out.

1. Yes, that should be a qualified distribution. The key will be keeping all of the documentation showing that it was for proper expenses. Always better to pay the school directly from the 529 Plan.

2. The earnings are the portion attributable to the distribution. Earnings are not first. Otherwise, you could use a distribution for college expenses, which eats up all the earnings, and then make a non-qualified distribution of the remainder and have no consequences.

11-Jul-2014 1:19pm
Oakland, CA
You never said if the D if P's dependent. If she is, then any payment of tuition by her is presumed to be made by her P, so as long as the P took a 529 distribution and made the payment in the same year, you're OK.

Not sure whether or not, in case D is not P's dependent, the plan would work. It might, I'm just not sure.

Distributions come out proportional, and usually the custodian will report on the tax form how much of the total was from the original contributions, and how much from earnings.

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