Iowa Code r. 781-16.12 - Nonqualified withdrawals and cancellation
Iowa Code section 12D.5 provides that any participant 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. A participant 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
participant.
(2) If the
participation agreement is canceled, the participant 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 participant after receipt by the contractor
of the appropriate form.
(3) Funds
that are distributed to a participant 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 participant 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
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