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    VA College 529 Plan

    Client emails me yesterday and says that they have had a VA 529 College Plan for several years (They never told me about it). 2015 we of course will take advantage of it. I responded by saying let's revisit amending VA from 2012 through 2014. In VA, you can claim up to $4,000 per year in eligible contributions, which is not a large tax savings ($4,000 * 5,75%) but $230 is better than zero.
    My question is "Client is thinking about not going back to amend and I don't want them to have any future problems when their 3 boys are ready to enter College as far as losing any benefits from this plan."
    The obvious tax benefit lost would be amended VA refunds predicated on what their contributions were for each of the 3 years. They did tell me that they did not max out the $4,000 so I need more information from them to proceed.

    What I am concerned about is 10 years from now when they take that first distribution from this QTP how will it be treated?

    Any help would be appreciated.
    Thanks,

    Taxadvisor VA

    #2
    The selection (or omission) to take the tax benefit on the state return should have no bearing at all on the future taxation of the benefits. They are two separate things. When the 529 plan was first introduced, I can't remember if there was a deduction on the state income tax return at all. When my client first started it in 2002, it was only $2K per plan, per student. It was increased to $4K pp/ps in 2009. There is a carryover feature if you pay more than the allowable amount per year, which can be continued until it is all recaptured. It will depend on the rules in effect at that time, but generally as long as it is used for qualified tuition payments, etc, withdrawals should be tax free. However, I cannot understand why he would forego the refund by not amending previous years' returns if he could. That doesn't make sense.
    Last edited by Burke; 01-16-2016, 04:02 PM.

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