Using Your 529 Funds
Put your money to good use.
You’ve done the saving, and now it’s time to put your funds to use. Your investment can go toward more than just college tuition — it can be used for a wide range of qualified education expenses at eligible institutions.
Here are three things to remember as you start using your 529 funds:
As the account owner, you control the account and determine when and where funds are paid.
The beneficiary of the account (the student you are saving for) is the individual whose qualified education expenses can be paid.
Make sure to review and understand your options and the tax consequences when withdrawing funds.
Keep reading to learn more about using your Bloomwell funds.
Ready to use your Bloomwell 529 funds?
When the beneficiary of the account is ready for college, you can rest assured knowing that your savings will help cover college expenses. We’ve included the following considerations as you get ready to use your funds.
Request a withdrawal online or submit a Withdrawal Request Form.
An account owner or custodian (under a state UGMA/UTMA) may request a withdrawal online or by downloading and submitting a Withdrawal Request Form.
Be sure to plan ahead when requesting a withdrawal. Generally, if a request is received in good order on a business day prior to the close of the markets (typically 3 p.m. CT), the investments will be sold at that day’s closing prices. Then, the funds will be received by the Plan the following business day and a check will be mailed. Please plan ahead 7 – 10 days to allow ample time for mailing. For withdrawals payable to the account owner’s bank account, please allow several business days for your bank to process the payment and credit your account.
Federal Qualified Withdrawal
A Federal Qualified Withdrawal is a withdrawal to pay for Federal Qualified Higher Education Expenses. These generally include:
- Tuition, fees, books, supplies, and equipment required for enrollment of, or attendance by, a Beneficiary at an Eligible Educational Institution
- Certain room and board expenses incurred by students who are enrolled at least half-time at an Eligible Educational Institution
- Expenses for special needs services in the case of a special needs Beneficiary that are incurred in connection with enrollment or attendance at an Eligible Educational Institution
- Expenses for the purchase of computer or certain peripheral equipment, computer software, or Internet access and related services, if such equipment, software or services are to be used primarily by the Beneficiary during any of the years the Beneficiary is enrolled at an Eligible Educational Institution
- K–12 Tuition Expenses
- Apprenticeship Program Expenses
- Qualified Education Loan Payments
Federal Qualified Withdrawals are generally free from federal income tax and penalties. However, a Federal Qualified Withdrawal may be subject to recapture of some state income tax deductions previously taken, depending on the rules of your state.
Nebraska Non-Qualified Withdrawal
Nebraska law does not treat the following Federal Qualified Higher Education Expenses as Nebraska Qualified Expenses:
- K–12 Tuition Expenses
Therefore, if a withdrawal is made for such purposes, although it is a Federal Qualified Withdrawal, it will be treated as a Nebraska Non-Qualified Withdrawal and may result in the recapture of a previously claimed Nebraska state income tax deduction, and the earnings portion will be subject to Nebraska state income tax.
Ready to withdraw?
When it’s time to use your 529 plan for qualified expenses, withdrawing funds is simple. Money from your Bloomwell account can be paid directly to you as the account owner, to the beneficiary, to a college or university, or to the account owner’s bank account.
Please note that some institutions may take three to seven business days to post payments to a student account. Please allow sufficient time for mailing and processing by the school.
Additional Considerations and Resources
The tax benefits afforded to 529 plans must be coordinated with other programs designed to provide tax benefits for meeting higher education expenses in order to avoid the duplication of benefits. You should consult with a qualified tax advisor with respect to the various education benefits.
Coordination with American Opportunity and Lifetime Learning Credits
An American Opportunity or Lifetime Learning Credit can be claimed in the same year the beneficiary takes a tax-free distribution from a qualified tuition program, if the same expenses aren’t used for both benefits.
Coordination with Coverdell Education Savings Account Distributions
If a beneficiary receives distributions from both a qualified tuition program and a Coverdell Education Savings Account in the same year, and the total of these distributions are more than the beneficiary’s adjusted qualified higher education expenses, the expenses must be allocated between the distributions.
Coordination with Tuition and Fees Deduction
A tuition and fees deduction can be claimed in the same year the beneficiary takes a tax-free distribution from a qualified tuition program as long as the same expenses aren’t used for both benefits.
Recontribution of Refunded Amounts
If a student receives a refund of qualified education expenses that were treated as paid by a 529 distribution, the student can recontribute these amounts into any 529 for which they are the beneficiary within 60 days after the date of the refund to avoid the need to figure the taxable part of the 529 distribution. This can occur when a student drops a class mid-semester.
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