Posted by: Carly Ahsher
Did you know if you or someone you know withdrawals from a 529 Savings Plan (College Savings Plan) and does not use it for education purposes it is still possible to avoid federal and state penalties?
YES! If the beneficiary is receiving a tax-free scholarship, Pell grants, or tuition discounts, you are able to reduce your 529 by the amount received without incurring the 10% penalty on your federal return. In addition, you do not have to add back any prior deductions you may have taken in previous years on the Ohio return!
Our client’s daughter received a full-ride scholarship for hockey, yet her mother had saved $17,000 in a 529 savings plan for her college tuition. She then decided to use the money for other expenses instead. By finding out more about her daughter’s scenario we were able to save the client $14,000 in add-back income on her Ohio return due to deductions she took in prior years and $551 in penalties on her federal return!