Iowa Code section 12D.5 provides that any account owner may
cancel a participation agreement at will. This rule establishes the criteria
for nonqualified withdrawals from an account or for the cancellation of a
participation agreement.
(1) A
nonqualified withdrawal is one in which the funds are used for a purpose other
than the payment of or reimbursement for qualified educational expenses. An
account owner may at any time make a nonqualified withdrawal of a portion of
the amount in an account or cancel a participation agreement, without cause, by
submitting to the contractor the appropriate form. A nonqualified withdrawal
will be paid only to the account owner.
(2) If the participation agreement is
canceled, the account owner is entitled to the amount in the account, subject
to any applicable fees and expenses. The balance shall be mailed or otherwise
sent to the account owner after receipt by the contractor of the appropriate
form.
(3) Funds that are
distributed to an account owner in a nonqualified withdrawal pursuant to this
rule shall be reported to the IRS on a 1099-Q in the tax year in which such
withdrawal is made. The account owner will receive the 1099-Q for any
nonqualified withdrawals. The individual receiving the 1099-Q must determine
whether the withdrawal was qualified or nonqualified. Nonqualified withdrawals
may be subject to state and federal taxes and penalties.
Notes
Iowa Admin. Code r. 781-16.12
Adopted by
IAB
May 22, 2019/Volume XLI, Number 24, effective
6/26/2019
Amended by
IAB
January 22, 2025/Volume XLVII, Number 15, effective
2/26/2025
