Qualified Expenses and Withdrawals.
How do I request a withdrawal from my account?
What are Qualified and Non-qualified expenses?
What are the limitations on room and board expenses?
Is there a penalty for non-qualified withdrawals?
What are the exceptions to the federal penalty tax?
How are withdrawals paid out?
How soon can the funds be withdrawn from the account?
Who controls withdrawals?
How do I request a withdrawal from my account?
A request form must be completed when requesting withdrawals for qualified expenses. Withdrawal Forms are available at the State Treasurer's Office, any Union Bank & Trust location, by calling 1-888-993-3746 or downloading the form from this Web site.
What are Qualified and Non-Qualified expenses?
Qualified expenses are post-secondary (ie: college) related expenses. The following are qualified expenses and are considered qualified withdrawals from an account: Tuition, Fees, Supplies, Equipment, and Books. Reasonable Room & Board expenses are considered qualified expenses if the student is enrolled at least 1/2 time. A withdrawal that is not for college expenses is considered a non-qualified withdrawal. The account owner is free to make withdrawals at any time.
What are the limitations on room and board expenses?
For students living on campus, the limit is the normal room and board cost of the institution. An educational institution is permitted to determine in their cost of attendance figures the appropriate amount for a student living at home with parents, as well as for other students not living in campus-provided housing. In order to use funds in the account for room and board expenses the beneficiary must be enrolled on at least a half-time basis.
Is there a penalty for non-qualified withdrawals?
Account owners may withdraw funds from their account at any time. Withdrawals for non-qualified expenses will be subject to income tax and a 10% federal tax penalty on the earnings portion of the withdrawn amount.
What are the exceptions to the federal penalty tax?
The additional 10 percent federal penalty tax does not apply to all nonqualified withdrawals. Generally, nonqualified withdrawals made on account of the following are not subject to the 10 percent federal penalty tax:
- The death of the beneficiary
- The disability of the beneficiary
- If the beneficiary receives a scholarship
- If a Hope Scholarship Credit and/or Lifetime Learning Credit is allowed to any person for payment of the Beneficiary's Qualified Higher Education Costs, the Earnings Portion of the part of the Nonqualified Withdrawal equal to such expenses will not be subject to the penalty tax.
- If the beneficiary attends the United States Military Academy, the United States Naval Academy, the United States Air Force Academy, the United States Coast Guard Academy, or the United States Merchant Marine Academy
You should consult your tax advisor regarding the application of any of the above exceptions. See "Exhibit B - Tax Information" in the Enrollment Handbook.
How are withdrawals paid out?
Distributions from accounts can be made in several ways. There are three options:
- The Distribution is made directly to an Institution of Higher Education;
- The Distribution is made in the form of a check payable to both the Beneficiary and the Institution of Higher Education;
- The Distribution is made to the Beneficiary.
- The Distribution is made to the Account Owner.
- You should retain documentation of your Higher Education Costs for income tax purposes.
How soon can the funds be withdrawn from the account?
Funds can be paid out at any time. The Plan does not have a holding period, as do some Plans.
Who controls withdrawals?
The account owner controls all account withdrawals and may make them at any time.
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