What is a nonqualified College Choice Tuition Savings Program distribution?

A withdrawal from a New York State College Choice Tuition Savings Program account is nonqualified if:
  1. The funds are used for purposes other than the higher education of the designated beneficiary
  2. The distribution is actually disbursed in cash or in-kind from the qualified state tuition program, even if the amount withdrawn is reinvested in the College Choice Tuition Savings Program within the Internal Revenue Code 60-day rollover period
  3. On or after January 1, 2003, the funds were transferred from the New York State College Choice Tuition Savings Program to another state's program.

However, nonqualified withdrawals do not include any withdrawals made in tax year 2014 as a result of the death or disability of the designated beneficiary, regardless of how the funds are used. If you do have a nonqualified distribution, use the worksheet in the New York IT-201 instructions to determine the taxable amount. The taxable amount basically takes your nonqualified withdrawal and reduces the taxable amount by any contributions you made in previous years to the program.

Transfers between accounts of family members not disbursed in cash or in-kind within the New York State College Choice Tuition Savings Program are not considered distributions and are therefore not required to be added back as nonqualified withdrawals.

For further instructions on how to calculate the addition, use this worksheet.

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