FAQs

Participants paying Vermont taxes may be able to claim the Vermont state income tax credit for contributions made to a VT529 account. Said contributions may only be claimed by a single individual and may not be for a subsequent or future year.

Unsure how much you contributed during a certain tax year? Log in to view your Financial Statements, which include a transaction summary at the end of each quarter outlining the tax year for each contribution received during that time period.

• On Schedule IN-119, VT Tax Adjustments and Non-Refundable Credits, enter the amount you contributed to VT529 during the tax year under Part II, VT Income Tax Credits, line 1, VT Higher Education Investment credit, and calculate the credit per the instructions. Note: FEIN if required for online filers is 030216589.

• Enter your total tax credit amount (VT529 plus any other Vermont tax credits you receive) on IN-111, Line 19.

• Paper filers may need to copy the annual VT529 statement and include it with forms when filing.

See the Vermont Official State Website for forms. For details and examples, including information on nonqualified withdrawals, see the Vermont Department of Taxes Technical Bulletin (TB-66).

Federal tax reform info: The Internal Revenue Code includes provisions related to 529 plan accounts. See the Disclosure Booklet [LINK] for details. In 2022, Vermont tax law was updated to add two new allowable uses of funds withdrawn from a VT529 account without adverse impact on the Vermont income tax credit: (1) for apprenticeship programs registered and certified with the U.S. Secretary of Labor and (2) for repayment of up to $10,000 per the lifetime of a beneficiary in student loans for post-secondary education at an approved postsecondary education institution. (See the VT529 tax credit information on the VT Tax website.) Vermont tax law currently does not treat a rollover to a Roth IRA or a withdrawal used for K through 12 education expenses as an allowable use. Please consult your tax advisor for how this may affect your personal Vermont tax situation.

As long as the money in your VT529 account is used for qualified expenses, it will not be counted as income for your state or federal taxes. If a purchase or other expense doesn’t qualify as an eligible expense, you’ll have to pay taxes and a 10% penalty on the interest portion of the amount spent.

Yes. If you make a withdrawal from your account for a non-qualified expense, the earnings tied to that distribution will be considered taxable income. There is a 10% federal tax penalty made on any earnings used to pay for non-qualified expenses. You will also have to pay back the state for any state income tax credits you have taken for contributions made to your account in relation to the amount withdrawn. Remember, your account grows and earns interest, tax-free, and when you withdraw those savings to use for qualified educational expenses, you can spend it tax-free too. These accounts are designed to be flexible, with most expenses related to higher education qualifying as eligible. You will only pay taxes if you use your account funds to pay for non-qualified expenses.

There are a few exceptions. You will not need to pay this additional 10% federal tax penalty if a withdrawal is made because the beneficiary has died or become disabled; has received a scholarship (the withdrawal amount cannot exceed the scholarship amount); or if the beneficiary has enrolled in an eligible military academy (the withdrawal amount cannot exceed the value of the education). If you’re still unsure about how things may affect your taxes, you may want to speak to a tax advisor for more information.

There are certain circumstances, such as if your beneficiary receives a full ride scholarship, when you can make a taxable withdrawal. A taxable withdrawal is a withdrawal made due to either the permanent disability or death of a beneficiary, the beneficiary’s receipt of a scholarship, or the beneficiary’s attendance at a military academy. Taxable withdrawals are subject to applicable federal income tax on earnings, if any, but are not subject to the 10% additional federal penalty tax on earnings.

The plan administrator must send the 1099-Q by January 31, so you should receive the form no later than early February following the close of the tax year. You will receive it via mail or electronic delivery based on communications preferences. 

When you make contributions to a VT529 account, your money has the chance to grow and earn interest, tax-free. And unlike many other investment options, when you withdraw your savings to use for qualified educational expenses, you can spend it tax-free too.

A state income tax credit of 10% of the first $2,500 contributed to VT529 per beneficiary per tax year is available to any Vermont taxpayer (or, in the case of a married couple filing jointly, 10% of the first $5,000 contributed per beneficiary) – a tax credit worth up to $250 per beneficiary ($500 per beneficiary for married couples filing jointly). Gifts made by a Vermont taxpayer to any VT529 account are also eligible for the credit.

Additionally, any funds that you plan to roll over from another 529 College Savings Plan are considered new contributions and may impact your taxes in a given tax year. It’s best to contact a tax advisor if you have questions about potential tax implications.

Yes. All Vermont residents are eligible to contribute to a VT529 account and claim the state income tax credit. You do not need to be the owner of the account to contribute and claim the tax credit. Please note, each contribution may only be claimed once for tax purposes, either by the account owner or the person making the gift contribution. 

If you make a withdrawal from your account, you will receive IRS Form 1099-Q, which details all of the withdrawals you made throughout the tax year from your account. The recipient of the Form 1099-Q will be either the account owner or the beneficiary, depending upon the tax responsible party you elected during the redemption process.  Withdrawals sent to an eligible educational institution will be reported under the beneficiary's Social Security number (or taxpayer identification number), per IRS guidelines.

To ensure that you properly handle matters on your federal income tax return, please consult a tax advisor and learn more about Form 1099-Q from the IRS directly.

No. You will only receive a 1099-Q tax form if you withdrew funds from or closed your VT529 account for that tax year. If you did not make any withdrawals, you are still able to claim the state income tax credit. Please log in to your account portal for details on the total contributions made in a given tax year. And remember to use this information when completing your online or paper tax filing.

The money that you contribute to your VT529 account is made with after-tax dollars, and any of your account earnings can be withdrawn and used to pay for qualified expenses tax-free.