Are qualified 529 withdrawals state income tax free if the 529 is out of state?

Forum|Forum|3 years ago
March 14, 2023
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If a California resident uses another state's 529 plan are qualified withdrawals still California state tax free? Or would you need to use your own state's 529 plan to have the state tax exemption?

Not A Product Question

DawnC

Employee

Yes, the qualified distribution (withdrawal) can be tax-free from any state's 529 (QTP) plan. Any earnings are tax-deferred, and withdrawals are tax-free when used for qualified higher education expenses for federal and state purposes. What exemption are you referencing?

You should receive a Form 1099-Q, Payments from Qualified Education Programs (Under Sections 529 and 530) from each of the programs from which you received a QTP distribution. The amount of your gross distribution (box 1) shown on each form will be divided between your earnings (box 2) and your basis or return of investment (box 3). Form 1099-Q should be made available to you by January 31, 2023. If the amounts are used for qualified education expenses; the amounts are tax-free.

For additional information, refer to Publication 970, Tax Benefits for Education.

Qualified Tuition Plans - TurboTax

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