My grandparents opened a college saving account a long time ago with GET (Guaranteed Education Tuition in Washington state), which is a 529 prepaid college tuition plan. We requested a refund recently, but after several mishaps with the refund paperwork we ended up with the check in my grandmothers name instead of mine. ======>>They generally have some options when requesting a distribution from a 529 plan: 1) a check made payable to the account owner, 2) a check made payable to the student
Were wondering whether or not my grandma can just sign the check over to me, or if she has to deposit it and then transfer it.====>IF she wants it she can do it; then it is a gift
If she can sign it over, is she subject to any taxes (& how much)? Once its in my account, how much & what kind of taxes are owed on $27,000?===>> The tax consequences depend on who received the money from the 529 plan: your GP or you. If your GP, as account owner, requested the refund, she will be responsible for reporting the gain on her federal income tax return as "other income on line 21 of 1040. The 529 plan will send her a Form 1099-Q shortly after the end of the year. This document reports her distribution and breaks it down between basis (nontaxable) and earnings. Besides paying tax on the earnings at ordinary income rates, she will also be subject to a 10 % penalty tax on the earnings. She needs to compute this on Form 5329 and attach it to her Form 1040. For example, let's assume she is in the 25% federal income tax bracket. she'll owe total tax and penalty on her nonqualified 529 distribution equal to 35 % of the gain.If she lives in a state with an income tax, she will also owe state income tax on the earnings. This even includes tax on the "recapture" of any income tax deductions she may have claimed on her state taxes when contributing to the 529 plan; On the other hand, if she requested the distribution from the 529 plan be paid directly to you as beneficiary, Form 1099-Q will be issued with your Social Security number.However this Is not your situation. This means the earnings will be reportable (along with the penalty you?re your federal income tax return. After paying taxes your GM can give the money to you as a gift;as a done you, in this case, are not liable for any tax. But she needs to fiel form 709 if the amt of the gift exceeds $14K.