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 VEST Matriculation FAQs
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| Q. How do I begin withdrawing money from my Virginia Education Savings Trust account? |
A. Complete the VEST Student Verification Form. Both the account owner and the beneficiary must sign the VEST Student Verification Form. This form authorizes us to disclose the student's name and social security number to higher education institutions, if necessary, to make payment arrangements. In addition, it is our policy to transmit the student's social security number when making payments directly to a higher education institution. This is necessary to ensure proper credit to the student's account.
Complete the required VEST Distribution Request Form. You will need to submit a separate Distribution Request Form for each individual payee. For instance, if you want us to pay tuition directly to the school and reimburse you for textbook costs, you will need to fill out two separate forms. You will also need to indicate on the Distribution Request Form the exact amount of the distribution requested. Should you prefer to request the total balance of funds in the account, check the appropriate box on the Distribution Request Form and the full account value will be remitted to you. Please be aware that if the requested dollar amount is within five dollars ($5) of the account balance, the full balance remaining in the account will be paid to the designated payee.
You may fax completed forms to us toll free at 1-877-591-1334, or mail them to P.O. Box 607, Richmond, Virginia 23218-0607.
Please remember that for tax purposes it is your responsibility to maintain adequate documentation indicating that the funds were used for qualified higher education expenses. |
| Q. I am eligible to begin using my VEST account but I am not going to college right away. What are my options? |
A. VEST beneficiaries have at least ten years after the projected high school graduation date to use VEST account benefits. In addition, any years served as an active-duty member of any branch of the United States Armed Services are added to the 10-year limit. An account owner may request an extension of the 10-year limit when the time period is about to expire.
In addition, a VEST account beneficiary may be changed to a member of the previous beneficiary's family (see Member of the Family definition in the VEST Program Description). VEST accounts may also be cancelled at any time. The account owner must pay income tax on the earnings portion of the refund, and the earnings are subject to an additional tax of 10%, which must be reported on the taxpayer's federal tax return.
If an account is cancelled for a reason other than the beneficiary's death, disability or receipt of a scholarship, deductions taken from the account owner's Virginia taxable income as a result of VEST contributions will have to be recaptured in the account owner's Virginia taxable income in the year the non-qualified distribution is received. |
| Q. Will the Virginia College Savings Plan notify my school that I have a VEST account? |
| A. No. We will not notify your school that you have a VEST account. It is your responsibility to ensure that the invoice from the school is paid by the due date. You can request that funds be paid directly to you before you actually receive the invoice, allowing you to make payment directly to the school once you receive the bill. You can also request that we pay the school directly. Please keep in mind the pending settlement dates described above to ensure that your payment will not be late (see, How long will it take to process my distribution after you receive my VEST Distribution Request Form?). |
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| Q. What are qualified higher education expenses? |
A. These are expenses allowed under Section 529 of the Internal Revenue Code, which governs college savings programs like VEST. In order for your distributions to be tax free, you must comply with federal definitions and regulations provided under Section 529. Generally, qualified higher education expenses include the following:
1. Tuition, all mandatory fees, and the costs of textbooks, supplies, and equipment required for the enrollment or attendance of a designated beneficiary at an eligible educational institution. Equipment, such as computers, must be required by the institution for the student's enrollment or attendance for the cost to be a qualified expense.
2. The cost of room and board of a designated beneficiary for any academic period during which the designated beneficiary is enrolled at least half time in a degree, certificate, or other program that leads to a recognized educational credential awarded by an eligible educational institution. The allowable amount of room and board expenses for students living on campus is the actual amount invoiced by the eligible educational institution. For students who live off campus or at home with a parent or guardian, the allowable amount for room and board expenses is the applicable room and board amount for that period used by the eligible educational institution in determining its cost of attendance. You should be able to obtain this information directly from the higher education institution. You may also be able to find this information on the National Center for Education Statistics' web site at www.nces.ed.gov/ipeds/cool. VEST does not endorse this web site or control any information provided on the site.
3. Also included are expenses for special needs services in the case of a special needs beneficiary, which are incurred in connection with enrollment or attendance at an eligible educational institution. |
| Q. How much will VEST pay? |
| A. VEST will pay directly to the payee the amount you request on the VEST Distribution Request Form, up to the balance of your account. The student or his or her family is responsible for any additional expenses not covered by a VEST account distribution. |
| Q. What schools are eligible to receive VEST distributions? |
A. In order to be tax-free, federal law (Internal Revenue Code Section 529) requires that VEST distributions be made for qualified higher education expenses incurred while a student is enrolled at an eligible educational institution. Generally, this means any accredited post-secondary educational institution offering credit toward a bachelor's degree, an associate's degree, a graduate-level or professional degree, or another recognized post-secondary credential. The institution must be eligible to participate in federal student financial aid programs under Title IV of the Higher Education Act of 1965. Schools that are eligible for these programs will have a Federal School Code. A listing of eligible schools is on the U.S. Department of Education's web site, www.fafsa.ed.gov/fotw0607/fslookup.htm. Higher education institutions that choose not to participate in federal student financial aid programs or that are not accredited do not meet the definition of eligible educational institution for purposes of qualified distributions from VEST.
In addition, in order for distributions for room and board expenses to be qualified, the student must be enrolled at least half time at an eligible educational institution. |
| Q. Can VEST distributions be used at private career schools and foreign schools? |
| A. VEST distributions may be made (or you may be reimbursed for payments made) to certain private career and foreign schools that meet the federal definition of an eligible educational institution. All schools that meet this federal definition have been assigned a Federal School Code. You may determine if a private career or foreign school has a code by visiting the Department of Education web site noted in the previous question. Contact us toll-free at 1-888-567-0540 for more information. |
| Q. Will VEST make payments to a third-party monthly payment plan administrator? |
| A. VEST will make payments to any payee indicated on the VEST Distribution Request Form. In order to make monthly payments, you will need to submit a separate VEST Distribution Request Form for each month's payment. Please keep in mind that these distributions will be subject to the VEST pending settlement periods, which may make it difficult to meet a monthly payment schedule. Therefore, we recommend that distributions to accommodate this type of monthly payment be requested, in advance, on a quarterly or semi-annual basis. Because costs other than qualified higher education expenses, such as transportation, may be included in monthly payment plan budgets, please review the expenses carefully to ensure that the entire distribution will be qualified. Proof of payment to the third-party administrator is not adequate documentation to establish qualified higher education expenses. You should retain copies of paid invoices or other supporting documentation to support the qualified expenses. |
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| Q. What documentation must I provide to request distributions from a VEST account? |
A. You do not need to provide documentation to request a distribution from a VEST account, although you must submit a Distribution Request Form. You must maintain adequate documentation of your expenses to show that your distributions were for qualified expenses because you are responsible for determining whether your distributions are qualified or non-qualified. Non-qualified distributions will be subject to an additional tax of 10% of the earnings. This penalty is reported on the taxpayer's federal tax return. The earnings portion of a non-qualified distribution is taxable as ordinary income. VEST will issue an IRS Form 1099-Q (Qualified Tuition Program Payments) reflecting this earnings amount for tax purposes.
Examples of documentation you may wish to retain for tax purposes include your invoices for tuition, fees, and room and board (for those students living on campus or in institutional housing) and receipts or other proof of payment for textbooks and equipment, such as computers. In addition to these receipts, you should retain other supporting documentation, such as a copy of a page from a college catalog, a copy of a web page, or correspondence from the institution establishing that the expense is required for the student's enrollment or attendance at the institution. |
| Q. How long will it take to process my distribution after you receive my VEST Distribution Request Form? |
A. All VEST distributions will be made subject to the pending settlement period outlined in the VEST Program Description. This is the period between receipt of your completed Distribution Request Form and when the amount to be distributed is actually withdrawn from your VEST account. Distribution requests in good standing received and processed by close of business each Friday (or the last business day of the week in the event of a holiday or if the VCSP is closed) will be withdrawn from the applicable portfolio on the following Wednesday (or the next business day in the event of a holiday or if the VCSP is closed). The net asset value used to determine the number of units liquidated in an account will be the net asset value calculated for the applicable portfolio on the business day immediately preceding the date the distribution amount is withdrawn from the account. The VCSP, at its sole discretion, may modify this settlement schedule without prior notice.
VEST is not responsible for payment of any higher education expenses that exceed the current balance of a VEST account at the time a distribution is made. When you redeem units of a portfolio, they may be worth more or less than the amount you invested. VEST is not responsible for market fluctuations between the time the VEST Distribution Request Form is received and the time the funds are actually withdrawn from the portfolio. |
| Q. How are payments made? |
| A. You must submit a Distribution Request Form for each distribution, indicating the payee. In most cases, we make payments either electronically or by check directly to the school for application to your account if you have requested direct payment to the school. If we are reimbursing you, or advancing you funds for eligible educational expenses, we will send a check to the requested payee at the address noted on the VEST Distribution Request Form. |
| Q. How does VEST make payments if I enroll part time? |
| A. We will pay the amount indicated on your Distribution Request Form up to the balance of your account. Remember that room and board costs are qualified expenses only if the student is enrolled at least half-time at an eligible educational institution. |
| Q. What if I withdraw after add-drop? |
| A. If you withdraw after payments have been made from your VEST account, your school may send you a refund of all or part of your VEST distribution, depending on the refund policy of the particular school. Any such refund could then be considered a non-qualified distribution if you do not have additional qualified expenses in an amount sufficient to offset your refund. Keep in mind that non-qualified distributions will be subject to an additional tax of 10% of the earnings. This penalty is reported on the taxpayer's federal income tax return. The earnings portion of a non-qualified distribution is taxable as ordinary income. |
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| Q. How will my VEST account affect my application for financial aid? |
A. For need-based financial aid, VEST accounts are reported on the Free Application for Federal Student Aid (FAFSA) if the account is owned by the student's parent whose assets are reported on the FAFSA. (The FAFSA is the application most colleges and universities use for determining federal need-based financial aid eligibility.) Instructions for completing the FAFSA indicate that students who must report parental information should report all qualified educational benefits or education savings accounts owned by their parents, including 529 college savings plans (VEST, CollegeAmerica, or CollegeWealth) and the refund value of 529 state prepaid tuition plans (VPEP). Approximately 5.6% of the value of Section 529 college savings plans and prepaid tuition plans will be included in the calculation of federal financial aid eligibility.
If the VEST account (or other qualified 529 educational asset) is owned by a dependent student who must report parental information on the FAFSA (custodial accounts under Uniform Transfers to Minors or Uniform Gifts to Minors statutes, for example) the account is NOT counted toward federal financial aid eligibility and should not be reported on the FAFSA. VEST accounts owned by someone whose assets are not reported on the FAFSA (such as grandparents, aunts, or uncles) are NOT reported on the FAFSA.
The receipt of account benefits should not affect the beneficiary's receipt of merit-based financial aid (academic or athletic scholarships, for example). VEST benefits do not affect a student's eligibility for a Virginia Tuition Assistance Grant for Virginia residents who attend an eligible, independent, nonprofit institution of higher education in Virginia.
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| Q. What VEST account value should be reported on the FAFSA? |
| A. If the VEST account must be reported on the FAFSA, the value to be reported is the current account balance or market value as of the date of reporting. If parental assets are being reported on the FAFSA and there are other VPEP, VEST, CollegeAmerica, or CollegeWealth accounts owned by the parents, those account values must also be reported, even if the beneficiary is different from the student on whose behalf the FAFSA is being completed. For VPEP contracts, the contract value is defined as the refund value of any benefits. This is the amount that would be received if the account were closed and the owner received a refund. For VPEP, this amount is the total of payments made minus any benefits already used plus interest at the reasonable rate of return, compounded annually, on the amount of payments made (for accounts owned more than three years). |
| Q. How can I get the correct account value(s) to report on the FAFSA? |
A. You can access the most current account values for all of your VEST and/or VPEP accounts online. Begin by clicking My Account (located at the top of every page) and follow the instructions. Refer to the VEST Benefits Guide [PDF document, 600k, opens in new window] for complete instructions. If you have trouble accessing your account, please call us toll free at 1-888-567-0540 and a customer service representative can assist you in retrieving this information.
Both VEST and VPEP account values will change due to changes in interest rates and market conditions, as well as the passage of time. Therefore, the value you see on statements you receive from us will, very likely, be different than the value you will see each time you review your account balances on this site. The FAFSA reporting requirement is the value of your accounts on the date you actually complete the form.
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| Q. What happens if I receive a full or partial scholarship? |
A. If you receive a scholarship, you have a number of options. You may use your VEST account for future years of undergraduate or graduate study or for qualified higher education expenses not covered by the scholarship. The account owner may also request a refund from VEST up to the amount of the scholarship. Please keep in mind that you will need to retain documentation of the scholarship in the event of a scholarship refund for tax purposes. Scholarship refunds are penalty-free, but the account owner will still have to pay ordinary income tax on the earnings portion of the scholarship refund.
If the student receives a full or partial athletic scholarship that is governed by NCAA or ACC regulations, a payment to the higher education institution from VEST may affect that scholarship. Please contact the higher education institution as soon as possible to determine if a payment from VEST will affect the student's situation. |
| Q. What is a scholarship? |
| A. Scholarships are grants awarded to students for academic, athletic, musical, or other special abilities. Scholarships also include certain tuition remission benefits for the children of college or university employees. Scholarships include appointments to a United States military academy. Scholarships do not include need-based financial aid, including student loans or work-study programs. |
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| Q. Do I need to keep any records of my expenses? |
| A. Yes. You must keep appropriate documentation (copies of invoices, meal plan contracts, or textbook receipts, for example) for at least three years for tax purposes. |
| Q. Will I receive a 1099? |
A. For any tax year during which there was a distribution from your Virginia College Savings Plan account, an IRS Form 1099-Q will be issued for your account. If the distribution was made directly to the beneficiary or to a school, the 1099-Q must be sent to the beneficiary; all other 1099-Q's will be sent to the account owner. If your beneficiary's adjusted qualified higher education expenses equal or exceed your Virginia Education Savings Trust account distribution, you do not need to report the earnings on your federal tax return.
You cannot use the same higher education expense to qualify for more than one tax benefit. For example, you may not use tax-free distributions from both a Virginia College Savings Plan Section 529 account and a Coverdell Education Savings Account for the same expense, such as tuition. Please see IRS Publication 970, Tax Benefits for Education, available at www.irs.gov, or by calling the IRS toll free at 1-800-829-3676, for specific examples. |
| Q. Are my distributions taxable? |
| A. All distributions from Section 529 accounts that do not exceed the amount of adjusted qualified higher education expenses are tax free at the federal level. In Virginia, qualified Section 529 distributions are also free of state taxes. If you live in a state other than Virginia, check with your state's department of taxation to determine whether qualified distributions from another state's Section 529 program are taxable. |
| Q. What are adjusted qualified higher education expenses? |
A. Adjusted qualified higher education expenses are total qualified higher education expenses (tuition, mandatory fees, certain room and board costs, and equipment and supplies, and special needs services required for enrollment or attendance at an eligible educational institution) reduced by any tax-free educational assistance. Tax-free educational assistance includes tax-free scholarships and fellowships, Veteran's educational assistance, Pell grants, employer-provided educational assistance, and any other tax-free payments (other than gifts or inheritances) received as educational assistance. Please see IRS Publication 970, available at www.irs.gov, or by calling toll free 1-800-829-3676, for examples.
Remember that you are entitled to use the full amount of qualified higher education expenses, including room and board costs, for the beneficiary in order to qualify your Section 529 distributions for a particular year. This means that even if you receive a Pell grant or a tax-free scholarship for tuition, you may still use room and board costs to determine your total qualified higher education expenses.
Example: If the student receives a tax-free scholarship for tuition and mandatory fees in the amount of $5,000, and you have a VEST distribution of $5,000, for purposes of Section 529, the VEST distribution of $5,000 can be allocated to room and board costs of $5,000 or more, because room and board costs are a qualified higher education expense.
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| Q. What are tax-free scholarships? |
| A. Tax-free scholarships and fellowships include scholarship or fellowship payments made to a degree-candidate at an eligible educational institution, if the scholarship or fellowship payments are for tuition, fees, books, supplies, or equipment. Scholarships and fellowships for room and board costs and travel expenses are taxable, and are not subtracted from qualified higher educational expenses. Please see IRS Publication 970, available at www.irs.gov, or by calling toll free 1-800-829-3676, for examples. |
| Q. Am I required to match up my 529 account distributions and higher education expenses in the same tax year? |
| A. IRS Publication 970, available at www.irs.gov, or by calling toll free 1-800-829-3676, indicates that distributions from Section 529 accounts must be made in the same tax year as the expense was incurred. Therefore, if possible, you should have your distributions made in the same tax year as the expenses were incurred. This will simplify the process of coordinating distributions from both a Section 529 account and a Coverdell Education Savings Account, or coordinating withdrawals from a Section 529 account with the Hope and Lifetime Learning tax credits. |
| Q. How do I report earnings and penalty from a non-qualified distribution? |
| A. If you have a non-qualified distribution from your Virginia College Savings Plan account, you must report the earnings portion on line 21 of IRS Form 1040. The additional 10% of earnings penalty tax is reported on IRS Form 5329. Please see page 29 of the instructions for IRS Form 1040 or IRS Publication 970 for additional information. |
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| Virginia's 529 college savings accounts may be used to pay for graduate school. Remember, account contributions grow tax free and withdrawals also are tax free as long as they are used for qualified higher education expenses. |
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