Use of Funds

Go to the college you want

When the beneficiary of the account is ready for college, you can rest assured that your CollegeCounts savings will be put to good use with a wide range of qualified expenses and eligible institutions.¹

Qualified Expenses

IRS Publication 970 defines qualified education expenses as follows: These are expenses related to enrollment or attendance at an eligible educational institution. As shown in the following list, some of the expenses must be required by the institution and some must be incurred by students who are enrolled at least half-time to be qualified.

The following expenses must be required for enrollment or attendance of a designated beneficiary at an eligible educational institution.
1. Tuition and fees.
2. Books, supplies, and equipment.
Expenses for special needs services needed by a special needs beneficiary must be incurred in connection with enrollment or attendance at an eligible educational institution.
Expenses for room and board must be incurred by students who are enrolled at least half-time. The expense for room and board qualifies only to the extent that it is not more than the greater of the following two amounts.
1. The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student.
2. The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution.
You may need to contact the eligible educational institution for qualified room and board costs.
The purchase of computer or peripheral equipment, computer software, or Internet access and related services if it is to be used primarily by the beneficiary during any of the years the beneficiary is enrolled at an eligible educational institution. (This does not include expenses for computer software for sports, games, or hobbies unless the software is predominately educational in nature.)

Eligible Educational Institutions

Funds can be used at any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U.S. Department of Education. It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. The educational institution should be able to tell you if it is an eligible educational institution.

Certain educational institutions located outside the United States also participate in the U.S. Department of Education’s Federal Student Aid (FSA) programs. Check out a listing of eligible schools from the Department of Education.

Recontribution of Refunded Amounts

If a student receives a refund after December 31, 2014, of qualified education expenses that were treated as paid by a qualified 529 distribution, the student can recontribute these amounts into a qualified 529 plan for which they are the beneficiary within 60 days after the date of the refund to avoid the need to figure the taxable part of the 529 distribution.

Payment Options

Money from a CollegeCounts account can be paid directly to the account owner, directly to the beneficiary, to the account owner’s bank account, or to an eligible educational institution.

Payments to Account Owners, Beneficiaries, and Bank Accounts
An account owner or custodian (under a state UGMA/UTMA) may request a withdrawal online or by downloading and submitting the Withdrawal Request Form.

Plan Ahead When Requesting a Withdrawal
Generally, if a request is received in good order on a business day prior to the close of the markets (typically 3 p.m., central time), the investments will be sold at that day’s closing prices, and a check will be mailed the following business day. Please plan ahead and allow sufficient mail time. For withdrawals payable to the account owner’s bank account, please allow several business days for your bank to process the payment and credit your account.

Other Important Withdrawal Considerations

The tax benefits afforded to 529 plans must be coordinated with other programs designed to provide tax benefits for meeting higher education expenses in order to avoid the duplication of such benefits. You should consult with a qualified tax advisor with respect to the various education benefits.

Taxable Portion of a Distribution
The part of a distribution representing the amount paid or contributed to a qualified tuition program doesn’t have to be included as income. This is a return of the investment in the plan. The designated beneficiary generally doesn’t have to include as income any earnings distributed from a qualified tuition program if the total distribution is less than or equal to adjusted qualified education expenses. To determine if your total distributions for the year are more or less than the amount of qualified education expenses, you must compare the total of all qualified tuition program distributions for the tax year to the adjusted qualified education expenses. Adjusted qualified education expenses are the total qualified education expenses reduced by any tax-free educational assistance. Tax-free educational assistance includes: the tax-free portion of scholarships and fellowship grants; veterans’ educational assistance; the tax-free portion of Pell grants; employer-provided educational assistance; and any other tax-free payments (other than gifts or inheritances) received as educational assistance.

Coordination With American Opportunity and Lifetime Learning Credits
An American Opportunity or Lifetime Learning Credit can be claimed in the same year the beneficiary takes a tax-free distribution from a qualified tuition program, as long as the same expenses aren’t used for both benefits. This means that after the beneficiary reduces qualified education expenses using tax-free educational assistance, he or she must further reduce them by the expenses taken into account in determining the credit.

Coordination With Coverdell Education Savings Account Distributions
If a designated beneficiary receives distributions from both a qualified tuition program and a Coverdell Education Savings Account in the same year, and the total of these distributions are more than the beneficiary’s adjusted qualified higher education expenses, the expenses must be allocated between the distributions. For purposes of this allocation, disregard any qualified elementary and secondary education expenses.

Coordination With Tuition and Fees Deduction
A tuition and fees deduction can be claimed in the same year the beneficiary takes a tax-free distribution from a qualified tuition program as long as the same expenses aren’t used for both benefits.

¹Withdrawals used to pay for qualified higher education expenses are free from federal and Alabama state income tax. Qualified higher education expenses include tuition, fees, books, supplies, and equipment required for enrollment or attendance; certain room and board expenses incurred by students who are enrolled at least half-time; the purchase of computer or peripheral equipment, computer software, or Internet access and related services if used primarily by the beneficiary during any of the years the beneficiary is enrolled at an eligible educational institution; and certain expenses for special needs services needed by a special needs beneficiary. The earnings portion of a non-qualified withdrawal is subject to federal income tax and 10% federal penalty tax. In addition, Alabama provides in the event of a non-qualified withdrawal an amount that must be added back to the income of the contributing taxpayer. The amount to be added back will be the amount of the non-qualified withdrawal plus 10% of the amount withdrawn.