Withdrawing principal in 529 plan

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starSCREAM
Posts: 1
Joined: Sun Mar 19, 2017 3:01 pm

Withdrawing principal in 529 plan

Post by starSCREAM » Sun Mar 19, 2017 3:46 pm

Hey folks,

My understanding of the 529 is like an Roth IRA. I pay taxes upfront, make a contribution, grows tax free. In a Roth IRA I can always take the principal out tax free (since I already paid), and only pay taxes on earnings. I've read conflicting information whether this is how the 529 works as well.

http://finance.zacks.com/penalty-withdr ... -1789.html
http://budgeting.thenest.com/penalty-ea ... 26337.html

I haven't been able to find anything on the IRS website.

Outafter20
Posts: 64
Joined: Tue Oct 18, 2016 1:44 pm
Location: New York for now.

Re: Withdrawing principal in 529 plan

Post by Outafter20 » Sun Mar 19, 2017 3:56 pm

Correct, as long as the withdrawals are used for "qualified expenses".

New York State gives you a tax deduction on contributions.

emoore
Posts: 242
Joined: Mon Mar 04, 2013 8:16 pm

Re: Withdrawing principal in 529 plan

Post by emoore » Sun Mar 19, 2017 4:03 pm

A 529 is not like a Roth IRA. Your contributions to the 529 are typically state tax deductible so you cannot removed the principal without the penalty unlike a Roth.

NYC_Guy
Posts: 124
Joined: Fri Mar 10, 2017 2:23 pm
Location: New York

Re: Withdrawing principal in 529 plan

Post by NYC_Guy » Sun Mar 19, 2017 4:13 pm

emoore wrote:A 529 is not like a Roth IRA. Your contributions to the 529 are typically state tax deductible so you cannot removed the principal without the penalty unlike a Roth.


There's no federal penalty. State rules vary.

Constant Chaos
Posts: 161
Joined: Fri Sep 06, 2013 11:45 am

Re: Withdrawing principal in 529 plan

Post by Constant Chaos » Sun Mar 19, 2017 4:28 pm

A 529 is not like a Roth where you can distinguish principal from earnings when you make a withdrawal. Every dollar taken out of a 529 will be made up of contribution and earning, pro rata. if it is not for qualified education expenses, then the part that is earnings will be subject to tax and penalty.

livesoft
Posts: 55514
Joined: Thu Mar 01, 2007 8:00 pm

Re: Withdrawing principal in 529 plan

Post by livesoft » Sun Mar 19, 2017 4:38 pm

starSCREAM wrote:I haven't been able to find anything on the IRS website.

IRS has this on their web site: https://www.irs.gov/pub/irs-pdf/p970.pdf
I think all the explanations that you need are in Chapter 8.

Qualified tuition programs (QTPs) are also called “529 plans.”


It wouldn't hurt to read the whole entire enchilada publication.
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Alto Astral
Posts: 671
Joined: Thu Oct 08, 2009 10:47 am

Re: Withdrawing principal in 529 plan

Post by Alto Astral » Sun Mar 19, 2017 8:37 pm

Constant Chaos wrote:A 529 is not like a Roth where you can distinguish principal from earnings when you make a withdrawal. Every dollar taken out of a 529 will be made up of contribution and earning, pro rata. if it is not for qualified education expenses, then the part that is earnings will be subject to tax and penalty.

Yes. And you will need to refund any state tax deductions you may have taken (For example IL gives a 3.75% state tax deduction upto $20K/year)

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