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  • 529 Withdrawals

    So.... finally done with the college applications and acceptances, looking at schools and now planning with my youngster where he will go.
    Now, about the 529 plans....
    For those of you that have done this before, what is the best way to document/pay for/get reimbursed for payments to the colleges.
    For instance, we have had to put down tuition deposit to hold his spot (not much, maybe $500) and then another housing deposit, etc.
    Can we just pull out the year or 1/2 year prospectus expenses and use it? Does he need to document everything?
    Help a fellow ignorant WCI member out... thanks!
    PS If there is a blog post, point me there! I looked and couldn't fine one.

  • #2
    Google is a wonderful tool!
    https://www.kiplinger.com/article/co...529-plans.html

    You will get a 1099Q?
    https://www.tgsfinancial.com/the-rig...your-529-plan/

    Comment


    • #3
      I’m two years ahead of you with one son starting junior year and another entering college this year. I didn’t reimburse from the 529 plan for anything other than tuition. The first year I wrote a check for tuition and then took distribution to pay back the cost. But it seemed too easy and not much back end verification when I initiated it, it made me a little nervous in case anyone questioned. The simplest way, with peace of mind for me that I found, is to have the 529 administrator send a check directly to the institution. That way there will never be any question. Congratulations on this new phase!!

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      • #4
        I pay for tuition, room, and board with a check (or online deposit) and reimburse myself, as I go. There never seems to be a problem or question, from the university, the 529 plan, or the accountant.

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        • #5
          Schools send a 1098-T to the students to document paid tuition and fees. Even if parents pay, form is sent to student usually accessible online. If not, make sure they send it home and not to the circular file.

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          • #6
            my kid is a college senior. For each year i have an Excel sheet with the expenses listed each month (ie. there is a rent expense each month, some months fees, a stray book etc). about 3-4 times a year when the market seems on an upswing I take a withdrawal to myself for everything i had already paid and document on the excel sheet. pasted in the excel sheet is the annual cost of attendance table for the school so i have a record of maximum expenses (for housing costs in particular).
            You can also pay school directly from the 520, or like Fidelity you can use bill pay out of the 529 to pay rent, etc...i just find it easier and more control to pay the bills myself and reimburse myself.
            Take note: the withdrawls must be taken the same calendar year as the expense. There are rare exceptions for tuition dates which hover over the year (ie let's say you pay tuition for winter intermission class between fall and spring semester on 31 December but then the 529 withdrawal hits after the following calendar year...per the IRS apparently this is ok as long as you have the paper trail.)
            Annually I get a 1098 whatever from the 529 and from the school and i file it away. There is nothing to do since I only make qualified withdrawals so there is no tax liability.
            My kid is on a scholarship and his last year i probably will take out his senior year of scholarship equivalent just to get the 529 more depleted and not have leftovers.Depends what my tax situation looks like that year since there will be gains on the scholarship withdrawal.

            Comment


            • #7
              Originally posted by bean1970 View Post
              my kid is a college senior. For each year i have an Excel sheet with the expenses listed each month (ie. there is a rent expense each month, some months fees, a stray book etc). about 3-4 times a year when the market seems on an upswing I take a withdrawal to myself for everything i had already paid and document on the excel sheet. pasted in the excel sheet is the annual cost of attendance table for the school so i have a record of maximum expenses (for housing costs in particular).
              You can also pay school directly from the 520, or like Fidelity you can use bill pay out of the 529 to pay rent, etc...i just find it easier and more control to pay the bills myself and reimburse myself.
              Take note: the withdrawls must be taken the same calendar year as the expense. There are rare exceptions for tuition dates which hover over the year (ie let's say you pay tuition for winter intermission class between fall and spring semester on 31 December but then the 529 withdrawal hits after the following calendar year...per the IRS apparently this is ok as long as you have the paper trail.)
              Annually I get a 1098 whatever from the 529 and from the school and i file it away. There is nothing to do since I only make qualified withdrawals so there is no tax liability.
              My kid is on a scholarship and his last year i probably will take out his senior year of scholarship equivalent just to get the 529 more depleted and not have leftovers.Depends what my tax situation looks like that year since there will be gains on the scholarship withdrawal.
              Are you allowed to do this?

              Comment


              • #8
                Originally posted by ENT Doc View Post

                Are you allowed to do this?
                Yes. you can take out the scholarship equivalent annually. There is no penalty but you pay tax on the gains.
                As with withdrawls, you have to reconcile year to year. so i haven't taken any equivalents out yet...so that opportunity has passed. But I still have 2021 and 2022 to take out equivalents of his senior year scholarship should i opt.

                Comment


                • #9
                  Originally posted by bean1970 View Post

                  Yes. you can take out the scholarship equivalent annually. There is no penalty but you pay tax on the gains.
                  As with withdrawls, you have to reconcile year to year. so i haven't taken any equivalents out yet...so that opportunity has passed. But I still have 2021 and 2022 to take out equivalents of his senior year scholarship should i opt.
                  Oh man I wouldn’t take it out, but that’s just me. Let it grow, let it grow. Let it blossom, let it flow.

                  Comment


                  • #10
                    As a precaution, I encourage everyone drawing down 529 funds to keep good records of payments made on behalf of the student beneficiary. While both my children have graduated and their 529s zeroed out, I did receive a CP2000 notice one year with the IRS implying the 529 earnings were not spent on educational expenses and were thus taxable even though the funds were sent directly to the university! I had to gather the 1098-T, dorm and meal card charge receipts to justify the payment. Not sure why this happened and thankfully only once for the 8 years worth of college expenses for my kids but it's better to get a receipt copy at the time the expense is paid rather than try to get a college student to access the necessary account records.

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                    • #11
                      Been busy on call since I posted but wanted to thank all of you for the advice! Super valuable information, thanks!

                      Comment


                      • #12
                        I was just listening to a money md podcast saying how it is easier to document if you have the 529 send money directly to the college rather then have you act as the intermediary for your personal tax purposes. I think that having the 529 send you money to reimburse you just generates a tax form you have to fill out and maybe having it sent to the college does not? Not sure.

                        Comment


                        • #13
                          Originally posted by SLC OB View Post
                          So.... finally done with the college applications and acceptances, looking at schools and now planning with my youngster where he will go.
                          Now, about the 529 plans....
                          For those of you that have done this before, what is the best way to document/pay for/get reimbursed for payments to the colleges.
                          For instance, we have had to put down tuition deposit to hold his spot (not much, maybe $500) and then another housing deposit, etc.
                          Can we just pull out the year or 1/2 year prospectus expenses and use it? Does he need to document everything?
                          Help a fellow ignorant WCI member out... thanks!
                          PS If there is a blog post, point me there! I looked and couldn't fine one.
                          It depends on what 529 plan you have - ours are in Utah and we just have them send the exact amount to school; nothing else to do.

                          Second, we prepaid 4 years of tuition for both our kids (different schools) as the colleges had plans to allow that, avoiding any tuition increase. (Although you can't prepay the room/board). If the 529 is a graduated-risk plan as most are, they make very little in such conservative investments the last few years as the kid gets ready to go off, and many schools raise tuition 2-4% a year - a better deal to just prepay if you've saved enough.

                          Comment


                          • #14
                            Originally posted by nephron View Post
                            I was just listening to a money md podcast saying how it is easier to document if you have the 529 send money directly to the college rather then have you act as the intermediary for your personal tax purposes. I think that having the 529 send you money to reimburse you just generates a tax form you have to fill out and maybe having it sent to the college does not? Not sure.
                            A 1099-Q is generated regardless of who receives the 529 $ (school, student, parent/owner). It's just easier when sent directly to the school to match it up to appropriate expenses. Tim's earlier post has good article re: 1099-Q.

                            Comment


                            • #15
                              To add to what GasFIRE pointed out.

                              The only difference on Form 1099-Q between having the 529 pay the school directly and reimbursing you for paying the school. Is that Box 6 is checked for the latter and is not checked for the former. All other boxes will be exactly the same.

                              Also, Form 1098-T will be exactly the same regardless how the payments are received.

                              ​​​​​​So I'm not sure what the podcast is talking about.

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