Publication 970 |
2000 Tax Year |
Distributions
The beneficiary is responsible for any tax due on a distribution
from the program. A refund of earnings not used to pay qualified
higher educational expenses of the beneficiary is subject to a penalty
unless it meets one of the conditions listed below under Allowed
uses of distributions.
Taxation of distributions.
Generally, the beneficiary must pay tax on any earnings on amounts
paid or contributed to a qualified state tuition program when those
earnings are distributed. The beneficiary does not have to pay tax on
the earnings if they are not taxable because of some other provision
of the law. There is no tax on the part of the distribution
representing the amount paid or contributed to the program. The part
representing the amount paid or contributed to the program is the part
of the distribution which bears the same ratio to the distribution as
the payment or contribution bears to the total balance in the program.
Allowed uses of distributions.
Generally, distributions must be used to pay the qualified higher
education expenses (defined earlier) of the beneficiary.
Penalty.
There is a penalty on any refund of earnings that does not meet
at least one of the following conditions.
- The refunded earnings are used to pay qualified higher
educational expenses of the beneficiary.
- The refund of earnings is made because of the death or
disability of the beneficiary.
- The refund of earnings is made because the beneficiary
received a scholarship, a veterans educational assistance allowance,
or another nontaxable payment (other than a gift, bequest, or
inheritance) for educational expenses. This only applies to the part
of the refund that is not more than the scholarship, allowance, or
other payment.
In-kind distributions.
Any in-kind distribution (such as a waiver of tuition) furnished to
a beneficiary under a qualified state tuition program is considered a
distribution to the beneficiary.
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