Sec 529 Plan (Oregon)

[taxjungle]

Hello all. My client has been contributing to an Oregon Sec 529 Plan for her grandson for awhile. The grandson has started college now and my client wants to know how to go about making distributions from it, keeping in mind her taxes, student aid for the grandson, etc. Should she give the distributionts to the grandson or the parents or to the college and when should the distributions be made?
Please help.

[nwtaxlady]

Distributions from the 529 plan....

The distributions from the 529 plan should go directly to the college so that there is no question what the money was used for. I would also say that the distribution should be made each term when the tuition is due. This is my personal opinion and for many reasons.

Lets say Grandma in Oregon is the account owner for this 529 plan. Granddaughter goes to college in Arizona. If Grandma takes money out of the 529 plan and sends a check to the granddaughter to go towards tuition how do you know it was spent for qualified education expenses? And on top of that, Granddaughter has a fulltime job and is supporting herself and files a tax return in Arizona claiming herself and the education credit. The tax return is probably prepared incorrectly, because it was not taken into account for the money coming out of a 529 plan. Because the Grandma is the account owner, she gets the 1099-Q in her name NOT the granddaughter! If the distribution was made directly to the college, then that might show up on the account history and should be questioned by the tax professional. If granddaughter takes her taxes to tax professional. So as you see, there is a big loop hole here. It is all because the 529 plan is in Grandma's name. That age group still wants to have control of the monies and therefore have the ownership of the 529 in there name and not the college students name.

Hope that puts things into perspective for you.