Tax Center

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Tax Center 2017-02-02T14:32:28+00:00
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Tax Information

If you will be receiving a federal or state tax refund, consider investing it into your CollegeCounts 529 account. Your federal and Alabama tax forms provide a section allowing you to deposit all or part of your refund directly into a bank account.

Here is the information you will need when completing the “Refund – Direct Deposit” section of your federal and/or Alabama tax returns:

       Routing Number: 104910795
       Type of Account: Savings
       Account Number: 3529 followed by your CollegeCounts 9- or 10-digit account number

Each year, Alabama taxpayers can deduct contributions made to CollegeCounts up to:1

  •  $5,000 single filers
  •  $10,000 married, filing jointly when both spouses contribute

The Alabama tax deadline is December 31.

Can I still make a 529 college savings contribution for 2016?
Because it is past December 31, 2016, the answer is no. That was the last day you could open a new CollegeCounts 529 account or contribute to an existing account for the 2016 tax year. This is, however, an excellent time to get a jump on 2017.

How can I determine my 2016 contributions for Alabama Income Tax Deduction purposes?
Review any contributions you made in that calendar year. Your December 31, 2016, account statement includes year-to-date contributions, which totals all account contributions received during the calendar year. Here are several important points to consider:

  1. Your 4th Quarter 2016 statement provides the year-to-date contribution totals for your account. The “YTD Contributions” detail includes all contributions received and invested from January 1, 2016 through December 31, 2016. Please keep the following in mind as you determine the total amount you may be able to deduct on your Alabama state income tax return.
  2. If you mailed a contribution in late-December 2016 that was invested in January 2017 as a 2016 “Prior Year Contribution,” the contribution would not be on your 4th Quarter 2016 statement because it was not received prior to December 31. Any contributions with a 2016 postmark that were invested in 2017 as “Prior Year Contributions” will be on your 1st Quarter 2017 statement. You will need to add “Prior Year Contributions” for 2016 to the “YTD Contributions” total on your 4th Quarter 2016 statement for Alabama tax deduction purposes.
  3. You may also need to subtract any contributions that were invested in January 2016 for the previous tax year (2015) to determine the correct amount for your 2016 tax deduction. Any “Prior Year Contributions” for 2015 should be subtracted from the YTD total on your 4th Quarter 2016 statement. Similarly, if family members or friends made contributions to your account, you would also need to subtract those contributions—each contributor is eligible to take the Alabama income tax deduction for contributions they may have made.
  4. Keep in mind, a contributor does not have to be the Account Owner to take advantage of the deduction. Any family members or friends who are Alabama taxpayers can take the deduction for any contributions they may have made to your account.
  5. Rollovers: The “YTD Contributions” reported includes any out-of-state rollovers into CollegeCounts. If you rolled over an out-of-state 529 plan to CollegeCounts the rollover can be deductible for Alabama state income tax purposes.

Alabama Tax Forms: You will report contributions to CollegeCounts on your Alabama Department of Revenue 2016 Form 40 (Part II – Line 8) for state of Alabama tax deduction purposes.

Please don’t hesitate to contact us at (866) 529-2228 if you have questions in determining the amount of your 2016 contributions eligible for the Alabama income tax deduction.

1Individuals who file an Alabama state income tax return are eligible to deduct for Alabama state income tax purposes up to $5,000 per tax year ($10,000 for married taxpayers filing jointly if both actually contribute) for total combined contributions to the Plan and other State of Alabama 529 programs. The contributions made to such qualifying plans are deductible on the tax return of the contributing taxpayer for the tax year in which the contributions are made. In the event of a Nonqualified Withdrawal from the Plan, for Alabama state income tax purposes, an amount must be added back to the income of the contributing taxpayer in an amount of the Nonqualified Withdrawal plus ten (10%) percent of such amount withdrawn. Such amount will be added back to the income of the contributing taxpayer in the tax year that the Nonqualified Withdrawal was distributed. Please consult with your tax professional.

Did you request a withdrawal from your CollegeCounts 529 account in 2016? If so, you will need IRS Form 1099-Q (mailed by CollegeCounts before January 31, 2017). The 1099-Q is a report showing the total amount of all withdrawals requested to the same payee as well as the principal and earnings portions of those withdrawals.1

The account owner will receive the 1099-Q if the check was payable to the account owner.

The beneficiary receives the 1099-Q for any withdrawals paid to the beneficiary or to the school.

We recommend that you keep the receipts and documentation of your college expenses with your tax paperwork in the event there are any questions about the amount you have withdrawn. You should discuss any tax reporting requirements with your tax professional.

1Individuals who file an Alabama state income tax return are eligible to deduct for Alabama state income tax purposes up to $5,000 per tax year ($10,000 for married taxpayers filing jointly if both actually contribute) for total combined contributions to the Plan and other State of Alabama 529 programs. The contributions made to such qualifying plans are deductible on the tax return of the contributing taxpayer for the tax year in which the contributions are made. In the event of a Nonqualified Withdrawal from the Plan, for Alabama state income tax purposes, an amount must be added back to the income of the contributing taxpayer in an amount of the Nonqualified Withdrawal plus ten (10%) percent of such amount withdrawn. Such amount will be added back to the income of the contributing taxpayer in the tax year that the Nonqualified Withdrawal was distributed. Please consult with your tax professional.

If you made larger gifts in 2016 (i.e.: typically over $14,000), don’t forget to mention them to your tax professional so they can determine if any special IRS filings are required. If you took advantage of the special five-year, front-loading election allowed for 529 plans, please notify your tax professional so they can prepare any necessary Gift Tax Return. The due date for filing is April 18, 2017.

The tax benefits afforded to 529 plans must be coordinated with other programs designed to provide tax benefits for meeting higher education expenses 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 any earnings distributed from a qualified tuition program as income if the total distribution is less than or equal to adjusted qualified education expenses. To determine if your total distributions for the year are greater 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 if the same expenses are not 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 if the same expenses are not used for both benefits.

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, to be qualified, some of the expenses must be required by the institution and some must be incurred by students who are enrolled at least half-time.

  1. 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.
  2. 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.
  3. 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 isn’t 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.

    Note: You may need to contact the eligible educational institution for qualified room and board costs.

  4. 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.)

If a student receives a refund 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. Please consult with your tax professional regarding the proper reporting and record retention requirements.

Internal Revenue Service Circular 230 Notice
Although our professionals provide information about CollegeCounts 529, they cannot provide tax advice. The information, including all linked pages and documents, on the CollegeCounts 529 websites is not intended to be tax advice and cannot be used to avoid any tax penalties. Union Bank & Trust, and its affiliates, and its associates do not provide legal or tax advice. Any tax-related discussion, including all linked pages and documents, contained on the CollegeCounts 529 websites is not intended or written to be used, and cannot be used, for the purpose of: 1) avoiding any tax penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions; or 2) promoting, marketing, or recommending to any person any transaction or matter addressed herein. You should consult your own tax advisor.