How to make withdrawals
Time to pay that tuition bill? Here's what you should know about making withdrawals from your Direct Plan account.
- Log on to your account.
- From My Accounts, choose the appropriate account to act on.
- On the "Overview" page, under Investments, select Make a Withdrawal.
Select Yes. This is a qualified withdrawal.; or Yes. This is a withdrawal to pay expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school.; or No. This is a non-qualified withdrawal. Then follow the instructions.
Note: Remember to enter the beneficiary's student ID number in the Memo section if your withdrawal is going directly to the college or other post-secondary school. Please note, however that withdrawals for K-12 tuition cannot be sent directly to the beneficiary or the educational institution. We will only send withdrawals for K-12 tuition to the account owner. *
- Submit your request.
By U.S. mail
- Download and print our Withdrawal Request Form.
Complete all sections of the form and sign where indicated.
Note: If the withdrawal is going to the college or other post-secondary school, enter the beneficiary's student ID in Section 3 of the form, and write it in the Memo section of your check.
Mail your completed form to:
New York's 529 College Savings Program Direct Plan
P.O. Box 55440
Boston, MA 02205-8323
If the withdrawal is going to the college or other post-secondary school, you'll need to provide your account, beneficiary, and school information, as well as the beneficiary's student ID number.
Please allow ten business days (plus mailing time, if applicable) for the funds to arrive.
You should also allow extra time for processing during periods of heavy volume, as crediting money to the student's school account may be delayed.
If you intend to add or change bank information, please factor in a 15-calendar-day verification period, during which assets can't be sent to the bank.
More about withdrawals
What can I use the money for?
You can withdraw funds from your account for any purpose. There are generally two types of withdrawals: qualified or nonqualified.
A qualified withdrawal is a withdrawal used to pay for qualified higher education expenses such as tuition, certain room and board costs, fees, books supplies, computers and equipment.
A nonqualified withdrawal is anything other than a:
- Qualified withdrawal.
- Withdrawal because of the death or disability of the beneficiary.
- Withdrawal because of the receipt of a qualified scholarship by the beneficiary (as long as the amount withdrawn does not exceed the amount of the scholarship).
- Rollover into a 529 plan not offered by the State of New York in accordance with Section 529 of the Internal Revenue Code.
- Transfer of assets to another beneficiary in a 529 plan offered by the State of New York (as long as the new beneficiary is a member of the family of the original beneficiary).
Federal law allows 529 plan account owners to withdraw assets to pay for expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school (K–12 tuition) up to $10,000 per year per beneficiary beginning in 2018 with no resulting federal taxes on account earnings or penalties.
Under New York State Law, distributions for K–12 tuition are considered nonqualified distributions and will require the recapture of any New York State tax benefits that have accrued on contributions. Direct Plan Account Owners in other states should seek guidance from the state in which they pay taxes.
Beginning in 2018, account owners can also roll over 529 plan assets into ABLE plan accounts, subject to the annual ABLE plan contribution limit, until December 31, 2025. Rollovers of 529 plan assets into ABLE plan accounts will not be considered taxable events for purposes of federal or New York State taxes. For more details about the Direct Plan's tax benefits, refer to the Disclosure Booklet and Tuition Savings Agreement.
Do I pay taxes on my withdrawals?
You don't have to pay federal or New York State income taxes on distributions from your account if the funds are used for qualified higher education expenses.
Earnings on a nonqualified withdrawal are treated as income and subject to federal and state income taxes, including, in most cases, an additional 10% federal penalty. Nonqualified withdrawals may also be subject to state and local taxes.
Withdrawals on account of the death or disability of a beneficiary or because of the receipt of a scholarship are subject to ordinary income tax, but not the federal 10% tax penalty. For New York State tax purposes, withdrawals due to the death or disability of a beneficiary are not includable in computing taxable income; however, withdrawals due to a qualified scholarship are includable in this calculation for the year in which the withdrawal is made.
Tax and other benefits are contingent on meeting other requirements, and certain withdrawals are subject to federal, state, and local taxes. Please consult a tax advisor regarding your state income tax if you're not a New York State taxpayer.
How much should I withdraw for qualified expenses?
When calculating how much you need, make sure you subtract any scholarship or grant money from the amount you're planning to withdraw.
Also, consider whether you're planning to claim any federal tax credits, like the American Opportunity Tax Credit or Lifetime Learning Credit. If you claim a credit, it will reduce the amount of your expenses that are considered qualified.
Note: Any excess amount you withdraw is considered a nonqualified withdrawal.
Who can receive the withdrawal?
All qualified higher education withdrawals can be sent by check to the account owner, the beneficiary, or the eligible educational institution. If bank instructions are set up on your account, the withdrawals can be sent electronically.
Withdrawals for K-12 tuition cannot be sent directly to the beneficiary or the educational institution. We will only send withdrawals for K-12 tuition to the account owner.
All other withdrawals (i.e. nonqualified withdrawals) can be sent to the account owner or the beneficiary.
How are withdrawals reported to the IRS?
You or the student will receive IRS Form 1099-Q in late January or early February, if you made a withdrawal the previous year. (If you received the money, then you get the form. If the student or school received the money, the student will get the form.)
This form will show gross distributions, earnings, and principal. If any of the earnings are considered taxable, they should be reported on Form 1040 as part of a federal income tax return. Be sure to keep records of all qualified expenses.