How do I take out my Vanguard investment for college without taxes?
August 14th, 2010
My grandparents set up a Vanguard investment for me when I was born.
I’ll be going to college this spring, and I’m told there’s a way to get the money without taxes if it’s for school; How?
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There are two kinds of accounts.
1. Is an UTMA/UGMA account and anything in it is fully taxable. The account will be invested in either stocks, bonds or mutual funds. If you take a distribution, you will get a 1099-B The 1099-B would be reported on your tax return and any taxes would be paid.
2. This could be a 529 account. Any distribution from that type of account is reported on a 1099-Q. If you are also in school and your distribution is more than qualifying expenses, you won’t be taxed on the earnings. (However, if you live at home, the only money that counts is tuition and you may prefer to pay tax on the earnings so that the tuition can be used for a credit.)
You can draw the money from the account and when filing a tax return claim an exemption to school purpose, there is a form you must file with your tax return to claim that exeption.
Contact Vanguard and they can tell you if its possible and how to do it since we dont know what kind of account it is. You should receive a 1099 at the end of the year to file with your taxes showing how much is taxable if any.