529 Plans and Your Tax Return
Tax season is officially underway, and individuals are preparing their financial records to get tax returns ready.
If you had a withdrawal from your Virginia529 account(s) during 2023, a Form 1099-Q was issued for tax purposes. Virginia529 has posted the Form 1099-Q to online accounts and physical copies will be mailed by the end of January 2024. There are a couple important things to note about receiving your Form 1099-Q.
- If a withdrawal was paid directly to an account owner, a 1099-Q will be mailed to the account owner. To view online, simply sign into your account on Virginia529.com, locate the View My Account tab, and select Tax Information (1099-Q Form) from the dropdown menu.
- If a withdrawal was paid directly to the student, to a K-12 school or eligible educational institution, the student will receive the Form 1099-Q in the mail. Students can sign to their Virginia529 account to view a digital copy (using the steps above) or create a login ID if they do not already have account access. It's important to note that the account owner will not be able to view this document in their own online account.
While 529 plans are relatively low-maintenance savings vehicles, there are times when account activity will need to be included on your tax return. Here are some factors to consider – and to discuss with a tax professional – when preparing your tax return.
Reporting 1099-Q Amounts on Your Tax Return
Virginia529 is required to report withdrawals to the IRS with Form 1099-Q. Qualified education expenses include tuition, fees, books, computers and related technology, and some room and board costs for students attending an eligible college or university.
Families can also take a tax-free withdrawal to pay for tuition expenses at private, public and religious elementary and high schools. This amount is limited to $10,000 per year, per student.
The SECURE Act of 2019 expanded the definition of qualified 529 plan expenses to include costs of apprenticeship programs and qualified student loan repayments. Qualified distributions for student loan repayments have a lifetime limit of $10,000 per beneficiary and each of their siblings.
529 withdrawals spent on other purchases, such as transportation costs or health insurance coverage are generally considered non-qualified.
If the withdrawal(s) taken on your account did not exceed the total amount of 2023 qualified higher education expenses incurred, you should not need to report the withdrawal(s) on your tax return. If, however, the withdrawal(s) exceeded your total qualified higher education expenses, consult a tax professional for more information as you may have income tax consequences.
Reporting Contributions on Your Tax Return
If you’ve simply been contributing to an existing 529 account you may not have to report anything on your federal income tax return. Contributions to a 529 plan are not deductible and therefore do not have to be reported on federal income tax returns. What’s more, the investment earnings in your account are not reportable until the year they are withdrawn.
As for state income tax filings, Virginia529 account owners who are Virginia taxpayers may deduct contributions up to $4,000 per account per year with an unlimited carryforward to future tax years, subject to certain restrictions.
Those account owners who are Virginia taxpayers age 70 and above may deduct the entire amount contributed to their Virginia529 account in one year. In addition, contributions to Virginia529 accounts are treated as a completed gift by the account owner to the student beneficiary. For the 2023 tax year, this means contributions up to $17,000 a year, or up to $34,000 if married, may be gift tax free (for 2024, this will increase to $18,000 a year, or up to $36,000 if married). You should consult your tax advisor regarding the specific tax consequences of contributions.
If you’re expecting a tax refund check this year, consider transforming it into a contribution toward your Virginia529 account.
