Be Happy With The Benefits Of 529 Saving
No matter what type of plan that you own and how much it might be growing, you always need to keep track of your "basis" or how much money you or anyone else has put into the account. If you live in a state that gives you partial or full credit for contributions into a Section 529 plan, you'll need to keep two separate sets of records. Here's why:
Your federal contributions will be made after you've already paid income tax on the money, while your contributions for state use may be made before state income tax. There's a distinct difference. By knowing this "basis", you can calculate how much of any distribution from the plan represents taxable earnings.
Calculating taxes on unused funds
After your family has earned its education, you may finally reach a point where you still have excess funds in the very last Section 529 plan that you own, and no one is left to fund. (Although your grandchildren can benefit from a roll over of the remainder into new accounts). If you don't have anyone left to fund for, that's fine.
Still it's wise to terminate your last plan and get out of the 529 business. At this time, you need to request a distribution from your plan manager of the entire balance. This, of course, is nonqualified and you'll have to pay income tax on the earnings portion of the distribution and a 10% penalty.
Just think of the money you've saved over the years with your 529 and remember it's only money.
|
