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Financial Planning / Tax Strategies


Subject:  Re: 529 withdrawals Date:  6/7/2009  6:00 AM
Author:  TMFPMarti Number:  106226 of 127638

It's weird, but on the Federal return any taxable distributions go to the beneficiary, not the donor. Make sure that the income goes on the right state return.

The beneficiary is too young to hold a job so has no income and no tax returns to file at all. The only tax returns would be my federal and state ones.

Like I said, it's weird. At the Federal level the only possible tax effect of a 529 distribution is additional income on the beneficiary's return. We've already established that in your case there is no effect at the Federal level.

It seems your state offers some sort of tax break to the donor when contributions are made and wants some sort of recapture if the distribution isn't used for qualified education expenses. I don't know who the state wants that from (the donor or the beneficiary), but the instructions should tell you.

If it turns out to be the beneficiary, then it could create a filing requirement at only the state level. For that issue you go back to the "Who Must File?" part of the state instructions.

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