2. Time the withdrawals correctly
529 withdrawals must be made in the same tax year of the payment of qualifying expenses, not the same academic year. Often, the most practical approach is to make withdrawals semester by semester as the academic year spans multiple calendar years.
3. Complete a withdrawal request
Account owners can withdraw 529 plan funds by completing a withdrawal request form online. Some plans also allow 529 plan account owners to download a withdrawal request form to be mailed in or make a withdrawal request by telephone.
If possible, avoid making the distribution payable to the account owner. It is best to send distributions directly to the beneficiary’s college or K-12 school. If that’s not possible, make them payable to the beneficiary. Non-qualified distributions payable to the owner may result in a higher tax liability.
For Oregon College Savings Plan: Make a request through your online account or fill out this form. The paper form allows OSCP to write a check directly to an intuition, but requires a notary.
4. Keep pristine records
Keep receipts of your qualified higher education expenses and your annual withdrawals (most 529 plans should issue an annual 1099-Q). If your returns are scrutinized someday, you’ll want to be prepared.
5. What to do with leftover funds in a 529 plan?
If there are leftover funds in a 529 plan account after the beneficiary graduates from college, or decides not to go to college, the 529 account owner may:
- Use the money to make student loan payments (up to a lifetime limit of $10,000 per borrower)
- Change the beneficiary to a qualifying family member who will use the funds for college
- Keep the funds in the account to use for graduate school or continuing education
In the worst case scenario the account owner liquidates the account and pays income tax and a 10% penalty on the earnings.