Prior to the SECURE Act 2.0, if a 529 plan beneficiary did not use all of the funds for qualified education expenses (for example, the beneficiary graduated without using all of the . You may want to discuss your question with Lester, my loyal watchduck and self-proclaimed advisors advisor. NotFDIC Insured | No Bank Guarantee | May Lose Value. There is a $50 Account Cancellation Charge for any Non-Qualified Distribution that totally depletes an Account. First time poster here, excited to join this informative section of reddit. The payment of the deferred compensation will be reported on Form W-2 even if you are no longer an employee at the time. These materials are not intended to provide tax, accounting or legal advice. The Social Security and Medicare tax (FICA on your W-2) is paid on compensation when it is earned, even if you opt to defer it. In order a 529 plan or Coverdell ESA fund to be fully non-taxable, the distributed money must be used to pay for qualified higher education expenses. and Income Tax issues and concerns. This book includes all of the updates to retirement plans with passage of the SECURE Act. The 529 plan custodian has no way of knowing whether this distribution is qualified or non-qualified, so none of that information is included on the 1099-Q. Non-qualified compensation plans are deferred compensation plans such as supplemental executive retirement plans and split-dollar arrangements. You can spend the money youve saved on expenses directly related to your education costs, including: Tuition and fees for full and part-time students can be paid with 529 plans. A 529 plan is a tax-advantaged plan to pay for education expenses. In many cases, a better strategy is available that will allow you to keep more of the funds youve worked so hard to accumulate. The penalties are severe. While transportation is usually not covered, if you have special needs, your transportation needs may be covered expenses. A portion of an employee's salary is deferred to a later date. Facebook:Jim Blankenship A Non-Qualified Distribution is any distribution that is not a Qualified Distribution. After finishing college and paying off college loans, I recently found out I inherited a 529 education savings account, such that I am now both the owner and beneficiary of the account.