Section 529 plans allow parents or other loved ones a tax-advantaged way to contribute money for college. Contributions are tax deductible, the money grows tax deferred and withdrawals to pay for qualified higher education expenses are tax free. Each state sponsors its own version of the Section 529 plan. Changes to the tax law as of 2009 allow tax-free withdrawals from Section 529 plans to purchase computers and other education-related technology.
Contact your Section 529 investment company and have them send you the funds you need. Most companies can wire the money directly to your bank account or send a check in the mail. Some companies will require you to sign a 529 Plan withdrawal request form. Only the account owner, trustee or designated estate representative can authorize the withdrawal, but the owner can forward the money to the beneficiary or have the money routed directly to the beneficiary or other third party, if necessary. It does not matter if you make the withdrawal before the purchase or use the Section 529 to reimburse yourself, so long as you keep the receipt.
Purchase a laptop. Ensure that the expenditure is reasonable, and the purchase can be reasonably related to the performance of school work.
Keep the receipt. You do not have to show it to the IRS in the year you purchase the computer. Keep the receipt, however, in case you are selected for an audit.
Keep the 1099-Q form your 529 fund company will send you in the mail. This is a tax form that documents your Section 529 withdrawals for the year. The fund company also reports this information to the IRS. You do not need to fill it out or file it with the IRS. You should, however, compare the 1099-Q form with your own records and review for accuracy.
Tips & Warnings
- Make sure your withdrawal and your expenditure come in the same tax year. In other words, don't purchase the computer in December and make your withdrawal in January or vice versa. Otherwise, you may have an expenditure and no matching 1099-Q to document your withdrawal until the following tax year.
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