What are qualified higher education expenses?
Qualified higher education expenses include tuition, mandatory fees, books, supplies, and equipment required for the enrollment and attendance of the beneficiary at an eligible educational institution and, under certain circumstances, room and board expenses. Qualified Higher Education Expenses also include certain additional enrollment and attendance costs of a beneficiary who is a special needs beneficiary in connection with the Beneficiary's enrollment or attendance at an eligible institution. For this purpose, eligible educational institutions generally are accredited postsecondary educational institutions offering credit toward a bachelor's degree, an associate degree, a graduate-level degree or professional degree, or another recognized postsecondary credential.
Do I have to use my account at a Vermont college or university?
No. The money in your account may be used at any eligible educational institution. This includes public and private colleges and universities, graduate and post-graduate schools, community colleges, and certain proprietary and vocational schools. Find an eligible school and how much it costs.
Can I use the money at schools outside the US?
Yes, 529 Plan assets can be used at some accredited foreign schools. Contact your school to determine if it qualifies as an eligible educational institution.
What if my child decides not to attend college?
If the beneficiary of an account does not attend college, the account owner may name another beneficiary for the account who must be a certain member of the family of the beneficiary that is being replaced. Otherwise, if the funds are withdrawn for a purpose other than to pay for qualified higher education expenses (except in the event of a beneficiary's death, disability, scholarship or attendance at a military academy), or they are treated as withdrawn (for example if an ineligible beneficiary is named) there will be a 10% additional federal tax on the earnings of the account owner's tax rate.
For Vermont tax purposes, a non-qualified withdrawal will result in income taxation on the earnings portion of the distribution and, to the extent that the account owner has previously taken a Vermont tax credit for contributions to the account, the contributions portion of the distribution. However, if an account owner has also made contributions to the account that were not deducted, the contributions portion of a non-qualified withdrawal does not have to be included in taxable income until the account owner has withdrawn all of the contributions that were not deducted.
What is a non-qualified withdrawal?
If the funds are withdrawn for a purpose other than to pay for qualified higher education expenses (except in the event of a beneficiary's death, disability, scholarship or attendance at a military academy), or they are treated as withdrawn (for example if an ineligible beneficiary is named) there will be a 10% additional federal tax on the earnings portion of the distribution, as well as federal income tax on the earnings at the account owner's tax rate.
For Vermont tax purposes, a non-qualified withdrawal will result in income taxation on the earnings portion of the distribution and, to the extent that the account owner has previously taken a Vermont tax credit for contributions to the account, the contributions portion of the distribution. However, if an account owner has also made contributions to the account that were not deducted, the contributions portion of a non-qualified withdrawal does not have to be included in taxable income until the account owner has withdrawn all of the contributions that were not deducted.
What happens in the event of death or disability of the beneficiary?
If the distribution is made due to the death or disability of the beneficiary, the earnings portion of such a withdrawal is subject to federal income tax but is not subject to a 10% additional federal tax. No Vermont income tax is due on such a distribution.
Will participation in VHEIP affect my beneficiary's eligibility for financial aid?
The treatment of investments in a 529 savings plan varies by school. Assets are typically treated as the account holder's and not the student's. Any investments, including those in 529 accounts, may affect the student's eligibility to get financial aid based on need. You should check with the schools you are considering regarding this issue.
What if my child gets a full or partial scholarship?
If the beneficiary receives a scholarship that covers the cost of qualified expenses, you can withdraw the funds from your account up to the amount of the scholarship without penalty or additional tax. The earnings portion of the amount withdrawn will be subject to the additional federal tax of 10% to the extent the amount withdrawn exceeds the amount of the scholarship. No Vermont income tax is due on such a distribution.
Is paying off a student loan a qualified higher education expense?
No. Repayment of student loans is not considered a qualified higher education expense.
How do I know which educational institutions are eligible?
Contact your school to determine if it qualifies as an eligible educational institution.
What room and board expenses are covered?
The beneficiary must be enrolled at least half-time at an eligible post-secondary institution in order for room and board to be considered an eligible qualified higher education expense. For students living at home with parents, as well as students living in non-campus housing, the eligible educational institution's "cost of attendance" allowance for purposes of determining eligibility for federal education assistance for that year will be the room and board amount treated as a qualified higher education expense. For students living on campus, the amount of room and board treated as a qualified higher education expense can be the actual invoice amount charged the student by the eligible educational institution, if it is greater than the "cost of attendance" allowance.
Can a Hope Scholarship Credit or Lifetime Learning Credit for qualified tuition and other related expenses still be taken?
A student or the student's parent may claim a Hope Scholarship Credit or Lifetime Learning Credit for certain qualified education expenses, provided that eligibility requirements for the credit are met. However, you cannot claim a credit based on the same expenses used to figure the tax-free portion of a distribution from a 529 plan. You should consult the current version of IRS Publication 970, Tax Benefits for Education, for information about other tax incentives available for educational expenses.
How do I take distributions to pay for college?
When you want to withdraw money (take a distribution) from your account, fill out the Withdrawal Request Form and return it to TIAA-CREF, TFI. This form can be used for withdrawals for qualified higher education expenses of your beneficiary, non-qualified withdrawals, or withdrawals due to death, disability or scholarship. Note: Non-qualified withdrawals will be subject to federal income taxes and a 10% additional federal tax. Keep your receipts.
If I move out of Vermont, what will happen to my account?
If you move to another state, you can still keep your money invested in your VHEIP account. You can also continue contributing money to your account. Before investing in a 529 plan, you should consider whether the state you or your designated beneficiary reside in or have taxable income in has a 529 plan that offers favorable state income tax or other benefits that are only available if you invest in that state's 529 plan.
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