Qualified Withdrawals

In general, qualified higher education expenses currently include tuition, fees, books, supplies, and equipment required for enrollment or attendance and room and board for students who are enrolled at least half-time. Funds can be used at any college, university, or technical school that participates in federal financial aid programs for students in the U.S. or abroad, not only institutions in Utah.

Non-qualified Withdrawals

The earnings portion of funds withdrawn from a UESP account that are not used for qualified higher education expenses are subject to federal and state income taxes and a 10% federal penalty tax. If a person needs to take a non-qualified withdrawal, consider to whom the check is payable. If the account owner receives the funds, IRS form 1099-Q will be sent to the account owner. If the funds are sent to the institution or beneficiary, the beneficiary will receive IRS form 1099-Q.

Circumstances Exempt from Penalties

There are certain circumstances in which Section 529 allows account owners to take a non-qualified withdrawal that is not subject to the 10% federal tax penalty on the earnings. Such circumstances include the beneficiary’s death, disability, receipt of a scholarship, or attendance at a U.S. military service academy.