How to pay college tuition from a 529?

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OldSport
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How to pay college tuition from a 529?

Post by OldSport » Fri Dec 29, 2017 6:50 pm

How do you pay college tuition from a 529? Do you pay the school directly from the 529?
Last edited by OldSport on Fri Dec 29, 2017 11:40 pm, edited 1 time in total.

Jack FFR1846
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Re: How to pay college tuition froma 529?

Post by Jack FFR1846 » Fri Dec 29, 2017 6:53 pm

529 money is sent as a check directly to the beneficiary in their name.
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OldSport
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Re: How to pay college tuition froma 529?

Post by OldSport » Fri Dec 29, 2017 7:02 pm

Jack FFR1846 wrote:
Fri Dec 29, 2017 6:53 pm
529 money is sent as a check directly to the beneficiary in their name.
That doesn't make sense. That means you have to trust the beneficiary to handle that correctly. Can you pay the school directly? Can the account owner pay themselves and then pay the school, assuming the beneficiary is a spouse or dependent child?

My lack of understanding of using a 529 is the one thing keeping me from opening one.

livesoft
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Re: How to pay college tuition froma 529?

Post by livesoft » Fri Dec 29, 2017 7:02 pm

I have the 529 check made out to my name sent to me. I deposit the check in my checking account. I usually pay tuition with a 2% cash-back credit card.
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OldSport
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Re: How to pay college tuition froma 529?

Post by OldSport » Fri Dec 29, 2017 7:08 pm

livesoft wrote:
Fri Dec 29, 2017 7:02 pm
I have the 529 check made out to my name sent to me. I deposit the check in my checking account. I usually pay tuition with a 2% cash-back credit card.
Does it have to be a physical check in Snail Mail, or can you have bank transfer if using a Vanguard 529?

How does the tax treatment work? Do you show the end of year tuition tax statment in the beneficiaries name when filing taxes to legitamize the 529 withdrawal for qualified education costs?

livesoft
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Re: How to pay college tuition froma 529?

Post by livesoft » Fri Dec 29, 2017 7:10 pm

I suppose they could do ACH transfer, but I never told the 529 plan my bank account nor e-mail information.

How do taxes work? Please read IRS Publication 970: https://www.irs.gov/pub/irs-pdf/p970.pdf
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delamer
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Re: How to pay college tuition froma 529?

Post by delamer » Fri Dec 29, 2017 7:12 pm

I had the money sent electronically to my checking account (as the 529 account holder) and then I paid the college. There was also an option to have the 529 pay the college directly.

WildBill
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Re: How to pay college tuition froma 529?

Post by WildBill » Fri Dec 29, 2017 7:45 pm

Howdy

For Vanguard 529 - Go to account. Click withdraw. Fill in name and address of institution. (In my case it was saved from last fall, and the years before.) Enter amount. Hit yes, confirm and yes. Check is mailed.

Other options are possible.

W B
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praxis
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Re: How to pay college tuition froma 529?

Post by praxis » Fri Dec 29, 2017 8:57 pm

I paid the tuition and sent the receipt to my 529 who sent me a check for the amount.

bogle520
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Re: How to pay college tuition froma 529?

Post by bogle520 » Fri Dec 29, 2017 9:04 pm

The options available to you would I think depend on the specific 529 plan you choose. For the Missouri MOST 529 plan (administered by Vanguard), the distribution choices are:

- Direct ACH electronic funds transfer to the bank of the account owner (in most cases the account owner would be a parent)
- Paper check to the account owner
- Paper check to the beneficiary (i.e, normally the student)
- Paper check to the College or University

I personally pay the college via credit card to get 2% cashback from the card, then get an ACH reimbursement which arrives in my bank the 2nd day after I request it online

splendiferous
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Re: How to pay college tuition froma 529?

Post by splendiferous » Fri Dec 29, 2017 9:20 pm

I was the beneficiary of a 529 that my grandfather setup for me. I would request it from my grandfather, and he would have them send me a check, which I would then deposit and pay my tuition with. I just had to note in my taxes that I got the money from the 529, and as long as it was less than my reported tuition costs, it seemed to be fine.

OldSport
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Re: How to pay college tuition from a 529?

Post by OldSport » Fri Dec 29, 2017 11:47 pm

Thanks for the replies. So it sounds like I can have the 529 pay me a distribution and then I pay the school directly. If the beneficiary is in my immediate family (spouse or dependent child), then this method should not be an issue?

Are there any rules to taking a distribution for qualified expenses of the beneficiary:
- Distribution has to occur same year as the qualified expense? For Spring tuition beginning in January, would the distribution have to be made January 1 or later of the year of the Spring semester?
- Does the distribution have to occur BEFORE tuition is paid, or can I pay tuition directly first, and pay myself back from distribution in same calendar year? Is there a time limit to this? Say tuition is due Jan 5, so I pay it Jan 3 but I don't take a distribution until Jan 10. Is that OK?

RetiredCSProf
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Re: How to pay college tuition from a 529?

Post by RetiredCSProf » Sat Dec 30, 2017 12:50 am

The total distributions need to be equal or less than the total expenses incurred within the calendar year, to avoid a taxable event. Otherwise, the order should not matter (unless the check is going directly to the school and needs to be received by a specified date).

My son's school sends an annual tax form some time around the end of January, showing the tuition and fees paid in the previous calendar year.

I don't know if all schools handle fees in the same way for the quarter or semester starting in Jan or Feb. For example, at my son's current school, the tuition for the spring semester is charged in January, even if the tuition was paid the previous December. That is, the tuition and fees for spring semester 2018 will show up on the annual tax form for the calendar year 2018, even if the tuition for spring 2018 was paid in December 2017.

ccieemeritus
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Re: How to pay college tuition from a 529?

Post by ccieemeritus » Sat Dec 30, 2017 4:43 am

I keep a spreadsheet of all qualified educational expenses. Page 2 includes screen captures of bills and housing costs to prove it to the irs should they ever audit me. Around November I take the money for the whole year out of the Coverdell or 529. It goes directly to me.

The CA 529 has a way to pay UCSD directly, but that never works out. Housing is a different address. Books and computer go to us. I also get nervous about a SNAFU resulting in a late charge, missing out on housing, getting removed from a class, etc. So I pay the school and reimburse myself in November.

If something goes wrong with the reimbursement, I’ve got all December to fix it.

MikeG62
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Re: How to pay college tuition from a 529?

Post by MikeG62 » Sat Dec 30, 2017 8:13 am

OldSport wrote:
Fri Dec 29, 2017 11:47 pm
Thanks for the replies. So it sounds like I can have the 529 pay me a distribution and then I pay the school directly. If the beneficiary is in my immediate family (spouse or dependent child), then this method should not be an issue?

Are there any rules to taking a distribution for qualified expenses of the beneficiary:
- Distribution has to occur same year as the qualified expense? For Spring tuition beginning in January, would the distribution have to be made January 1 or later of the year of the Spring semester?
Yes, be careful to ensure distribution occurs in same year expenses are paid. The university where my youngest daughter goes changed their policy last year and no longer allow Spring tuition to be paid before January 1 of that year. I suppose this to prevent exactly this issue from occurring.
OldSport wrote:
Fri Dec 29, 2017 11:47 pm
- Does the distribution have to occur BEFORE tuition is paid, or can I pay tuition directly first, and pay myself back from distribution in same calendar year? Is there a time limit to this? Say tuition is due Jan 5, so I pay it Jan 3 but I don't take a distribution until Jan 10. Is that OK?
No. As long as in the same year you are fine.
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SimonJester
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Re: How to pay college tuition froma 529?

Post by SimonJester » Sat Dec 30, 2017 11:21 am

bogle520 wrote:
Fri Dec 29, 2017 9:04 pm
The options available to you would I think depend on the specific 529 plan you choose. For the Missouri MOST 529 plan (administered by Vanguard), the distribution choices are:

- Direct ACH electronic funds transfer to the bank of the account owner (in most cases the account owner would be a parent)
- Paper check to the account owner
- Paper check to the beneficiary (i.e, normally the student)
- Paper check to the College or University

I personally pay the college via credit card to get 2% cashback from the card, then get an ACH reimbursement which arrives in my bank the 2nd day after I request it online
Uggg the college my oldest has chosen for fall of next year charges a 2.75% fee for using debit or credit cards. Looks like they will be getting paper checks.
"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." - Benjamin Franklin

CT-Scott
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Re: How to pay college tuition from a 529?

Post by CT-Scott » Sat Dec 30, 2017 11:50 am

As someone else mentioned, there are usually multiple options:
1) Check made payable to account holder
2) Check made payable to school
3) Check made payable to beneficiary

Somewhere I read that it was best to have it made payable to the beneficiary, so that's how I've been doing it. In my case, it's for my daughter, and I still handle all the bill-paying for her.

Regarding eligible expenses....for full-time students (not all of these apply to part-time students), in addition to the tuition itself, eligible expenses include books and supplies (including a computer), and room and board at the school.

RetiredCSProf
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Re: How to pay college tuition from a 529?

Post by RetiredCSProf » Thu Feb 08, 2018 6:28 pm

RetiredCSProf wrote:
Sat Dec 30, 2017 12:50 am
I don't know if all schools handle fees in the same way for the quarter or semester starting in Jan or Feb. For example, at my son's current school, the tuition for the spring semester is charged in January, even if the tuition was paid the previous December. That is, the tuition and fees for spring semester 2018 will show up on the annual tax form for the calendar year 2018, even if the tuition for spring 2018 was paid in December 2017.
Correction to my previous post. Last week, I received the 1098-T (2017) form. It did not match what I thought was paid for tuition and fees in 2017. So I called -- the college hired someone new last month to fill this position. Either the rules changed, or the previous person in that job did not explain it correctly.

Here's the latest explanation from his current school:

Tuition and fees are considered to be charged to the year in which the student registers for the classes, regardless of which year the fees are actually paid and regardless of when the student enrolls in the class. For example, if the student registered in December 2017 for a class starting in February 2018, the tuition is charged to 2017. It makes no difference whether he/she paid for the class in 2017 or 2018. Also, health care fees and parking fees (which are both charged at the time of registration) cannot be deducted from a college saving account.

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AAA
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Re: How to pay college tuition from a 529?

Post by AAA » Thu Feb 08, 2018 6:54 pm

For the PA plan, the withdrawal form allows you to specify who gets the money. It can go directly to the school or to whoever else is named (not necessarily the beneficiary of the plan e.g. the parent fronts the payment to the school and then gets reimbursed from the plan). The one issue with naming the school is that you don't know how long it will take for the payment to get to the school. It's not the fastest process.

sj1961
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Re: How to pay college tuition from a 529?

Post by sj1961 » Thu Feb 08, 2018 9:01 pm

Be thoughtful of who gets the distribution in determining whose money it is and how your child would pass the support test if you are wanting to claim the child tax credit

SimonJester
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Re: How to pay college tuition froma 529?

Post by SimonJester » Thu Feb 08, 2018 9:13 pm

livesoft wrote:
Fri Dec 29, 2017 7:02 pm
I usually pay tuition with a 2% cash-back credit card.
My kids college charges a 2.75% fee for all credit and debit card transactions! I wrote a check for the fall housing deposit and its been 3 weeks they still havent cashed it :( I can tell these guys are going to be a pain to deal with...
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MikeG62
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Re: How to pay college tuition from a 529?

Post by MikeG62 » Fri Feb 09, 2018 8:33 am

Been doing this for 7 years. I have the funds sent electronically to me (account owner) by ACH. I then pay the college by direct debit to my checking account.

If you are eligible for the AOTC, you may want to pay the first $4,000 in tuition from funds outside your 529 (otherwise you will pay tax on the appreciated portion of the withdrawal).
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marcopolo
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Re: How to pay college tuition from a 529?

Post by marcopolo » Fri Feb 09, 2018 9:08 am

I have the funds sent directly to the beneficiaries Fidelity Cash Management Account, then he pays tuition/fees and rent on his apartment, groceries etc. on his own.

I do this for several reasons.

1) The 1099 from 529 plan and 1098 from school will have same person listed, lowers risk of getting CP2000 inquiry from IRS
2) If by chance, we make a mistake and over withdraw (possible since exact expenses are not known when living off campus), then they are taxed at his lower rate, not mine.
3) Most importantly for me, it is a another aspect to get him to start managing his own finances, while we still provide some oversight. Kind of like financial training wheels. I much prefer this to handling everything for him now, and then the day after graduation he has to start swimming in the deep end. This approach is not right for everyone.
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soccerrules
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Re: How to pay college tuition from a 529?

Post by soccerrules » Fri Feb 09, 2018 9:22 am

I call the 529 administrator and tell them the name of student (and ID), address of the institution and they send the funds to the university either by check or ACH. (1 was set up by grandparents )

After the first transaction they have the information for future semesters. I then wait 1 week and check the university online e-bill account.

as indicated there are other methods to accomplish the end result as well.
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gasdoc
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Re: How to pay college tuition from a 529?

Post by gasdoc » Fri Feb 09, 2018 10:04 am

I pay the college as a debit from my personal checking account. Then, I reimburse myself from the 529 at Vanguard. They mail me a physical check, but I may change that to an electronic transfer if I can. I then staple the receipt from the Vanguard 529 to the receipt from the electronic transfer to the college so that the expenses all line up with the 529 disbursements.

gasdoc

Leesbro63
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Re: How to pay college tuition from a 529?

Post by Leesbro63 » Fri Feb 09, 2018 10:11 am

I've had a lot of experience with this. For Boglehead-type parents with at least upper middle class incomes, I suggest having the check made out to your kid or to the school. If the check is made out to the parent, it will be reported via Form 1099-Q in the parent's Social Security number. Which often triggers IRS nastygrams that assesses tax, interest and penalties which all assume that the money is taxable. Because it appears that the IRS has no way of matching the school's reporting of tuition and fees due via the child's SS number to the 529 plan's payment to the parent in the parent's SS number. So the IRS computers just "see" a 529 withdrawal that the parent did not report, and treats it like any other 1099 that has income that doesn't match up with what they get from the financial institution.

The burden then is on the parent-taxpayer to prove it's not taxable income. Which isn't too hard, but is a royal pain in the neck. Even if paid to the student you might get an IRS nastygram, but, in my experience the odds are way less, the threatened amount due is less and proving that "I'm a student/same SS number for both 529 and college 1098-T" is easier than having the 1098-T to the student's SS and the 1099 from the 529 in the parent's.
Last edited by Leesbro63 on Fri Feb 09, 2018 10:32 am, edited 4 times in total.

NotWhoYouThink
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Re: How to pay college tuition from a 529?

Post by NotWhoYouThink » Fri Feb 09, 2018 10:19 am

RetiredCSProf wrote:
Thu Feb 08, 2018 6:28 pm
RetiredCSProf wrote:
Sat Dec 30, 2017 12:50 am
I don't know if all schools handle fees in the same way for the quarter or semester starting in Jan or Feb. For example, at my son's current school, the tuition for the spring semester is charged in January, even if the tuition was paid the previous December. That is, the tuition and fees for spring semester 2018 will show up on the annual tax form for the calendar year 2018, even if the tuition for spring 2018 was paid in December 2017.
Correction to my previous post. Last week, I received the 1098-T (2017) form. It did not match what I thought was paid for tuition and fees in 2017. So I called -- the college hired someone new last month to fill this position. Either the rules changed, or the previous person in that job did not explain it correctly.

Here's the latest explanation from his current school:

Tuition and fees are considered to be charged to the year in which the student registers for the classes, regardless of which year the fees are actually paid and regardless of when the student enrolls in the class. For example, if the student registered in December 2017 for a class starting in February 2018, the tuition is charged to 2017. It makes no difference whether he/she paid for the class in 2017 or 2018. Also, health care fees and parking fees (which are both charged at the time of registration) cannot be deducted from a college saving account.
I'm not sure the 1098-Ts we got ever matched what we paid when we paid it, so we ignored them. I kept a copy for records, but also kept copies of bills and receipts. Most years it didn't matter. What does matter is that if you intend to make a withdrawal from the 529 for Qualified Educational Expenses, the withdrawal and the payment to the school need to happen in the same calendar/tax year.

RetiredCSProf
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Re: How to pay college tuition from a 529?

Post by RetiredCSProf » Sat Jun 23, 2018 9:53 pm

I'm revisiting this thread as my son is transferring from community college to a more expensive 4-year school, and I will need to start taking withdrawals form his Vanguard 529 fund, which offers three options:
  • check payable to University -- but may take 10 business days for Univ to process, so sounds a bit "iffy"
  • check payable to beneficiary -- I'll need to ensure that his college account does not have a withdrawal limit that's less than the tuition amount
  • check payable to account owner (me) -- after reading inputs on this thread, it sounds like that can create an issue with IRS, and I have sometimes had banks place a "hold" on deposits

HereToLearn
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Re: How to pay college tuition from a 529?

Post by HereToLearn » Sat Jun 23, 2018 10:37 pm

RetiredCSProf wrote:
Sat Jun 23, 2018 9:53 pm
I'm revisiting this thread as my son is transferring from community college to a more expensive 4-year school, and I will need to start taking withdrawals form his Vanguard 529 fund, which offers three options:
  • check payable to University -- but may take 10 business days for Univ to process, so sounds a bit "iffy"
  • check payable to beneficiary -- I'll need to ensure that his college account does not have a withdrawal limit that's less than the tuition amount
  • check payable to account owner (me) -- after reading inputs on this thread, it sounds like that can create an issue with IRS, and I have sometimes had banks place a "hold" on deposits
I have the 529 administrator issue a check payable to the university, but have them mail it to my house. The university asks that a paper invoice be included when paying by check, so having the check mailed to my house allows me to ensure that the invoice and the check are attached to each other. The check arrives from the 529 administrator in less than a week, allowing me time to mail it to the university.

SimonJester
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Re: How to pay college tuition from a 529?

Post by SimonJester » Sun Jun 24, 2018 12:46 am

I would think you should contact the 529 plan administrator and see if it matters who the check is made out to. They may issue a 1099-Q to the SSN on file regardless who the check is made out to.

I have decided I will use electronic transfers back to me and pay the college via check. I will just deal with the IRS CP-2000 is / when I receive one...
"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." - Benjamin Franklin

amitb00
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Re: How to pay college tuition from a 529?

Post by amitb00 » Sun Jun 24, 2018 6:31 am

I get 529 funds in my checking account and pay to school by requesting debit from my checking account on due date.

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beyou
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Re: How to pay college tuition from a 529?

Post by beyou » Sun Jun 24, 2018 6:41 am

I had 529 send check to 2 different colleges. No problems with either college or the IRS. I hated having to go with paper checks, but leaving your self out if the transaction, I have heard, avoids IRS love letters. So I went with the advice and all was well. Would do it again, except spent all our 529 already ;-)

delamer
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Re: How to pay college tuition from a 529?

Post by delamer » Sun Jun 24, 2018 12:06 pm

RetiredCSProf wrote:
Sat Jun 23, 2018 9:53 pm
I'm revisiting this thread as my son is transferring from community college to a more expensive 4-year school, and I will need to start taking withdrawals form his Vanguard 529 fund, which offers three options:
  • check payable to University -- but may take 10 business days for Univ to process, so sounds a bit "iffy"
  • check payable to beneficiary -- I'll need to ensure that his college account does not have a withdrawal limit that's less than the tuition amount
  • check payable to account owner (me) -- after reading inputs on this thread, it sounds like that can create an issue with IRS, and I have sometimes had banks place a "hold" on deposits

It may be that the 3rd option can create an issue with the IRS. However, this is the method that I used for 8 years for 2 kids, and I never was contacted by the IRS.

As far as holds go, you just need to allow sufficient time between the deposit and the withdrawal.

livesoft
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Re: How to pay college tuition from a 529?

Post by livesoft » Sun Jun 24, 2018 12:20 pm

RetiredCSProf wrote:
Sat Jun 23, 2018 9:53 pm
  • check payable to account owner (me) -- after reading inputs on this thread, it sounds like that can create an issue with IRS, and I have sometimes had banks place a "hold" on deposits
I've had checks issued to me for 8 years of college for two different kids. I deposit the check in my checking account. One college would take a credit card without charging and extra fee, so I always paid that with a 2% cashback card and then paid the credit card off from my checking account.

Never had a problem with the IRS. No love letters. I don't get a 1098-T, but my students always got the 1098-T which I put with my tax return. The 1099-Q would come to me.

I can speculate that I never had an IRS problem because the 1098-T always showed way more expenses than the 1099-Q showed for a withdrawal. That's because I did not come close to paying all the expenses with a 529 plan. Furthermore, my students mostly lived off campus so room and board did not show up on the 1098-T either. We always claimed the American Opportunity Tax Credit, too.
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billfromct
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Re: How to pay college tuition from a 529?

Post by billfromct » Sun Jun 24, 2018 1:52 pm

My kids were in college 5-10 years ago.

I had my kids 529 with Fidelity.

I had Fidelity make the check (total semester cost minus $4,000) out to: University of X, FBO Jannefromct. I had Fidelity send the check to our home address.

I wrote a personal check for $4,000 for tuition to take advantage of the American Opportunity Tax Credit. I noted "Tuition Charges" in the memo section of my personal check.

I then created a cover letter explaining everything to the college sent with the 2 checks; just in case the IRS ever question my tuition tax deduction.

Of course I made copies of everything. Maybe this was overkill, but better to have the backup.

bill

boater07
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Re: How to pay college tuition from a 529?

Post by boater07 » Sun Jun 24, 2018 2:38 pm

I found this post to be most helpful as grandparent with 529 .
My grandaughter is getting aid including school work and loan in excess of straight aid.
Since a 529 cannot be used to repay loans, how would they know what withdrawal included?
As I learned from above, I will have checks issued to her and will loose control how she uses them.
Am I overthinking this issue?? :oops:

NoHeat
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Re: How to pay college tuition from a 529?

Post by NoHeat » Sun Jun 24, 2018 3:21 pm

RetiredCSProf wrote:
Sat Jun 23, 2018 9:53 pm
I'm revisiting this thread as my son is transferring from community college to a more expensive 4-year school, and I will need to start taking withdrawals form his Vanguard 529 fund, which offers three options:
  • check payable to University -- but may take 10 business days for Univ to process, so sounds a bit "iffy"
It’s not iffy. I’ve done it for six years now, for several 529s, and two colleges. It always works reliably for me. Just make sure that you enter the correct info in the online form, including most importantly
- the correct mailing address for the check, which you can find on your enclosed envelope or invoice, and
- student ID no, for your child. The 529 administrator will print this in the memo line on the check, so that the college can reliably match the check to the student.

This is the preferred solution. Here’s why I don’t like the other two choices:
- a check to you is worse because of the tax-form nuisances when you file your 1040*
- a check to your child is less reliable because itadds extra steps: your child might fail to open mail, deposit check, write check, and mail.

* The form 1099Q will be directed to your student if the check was payable to the university or the student. This is best, because the student’s name is on the college’s invoices for the expenses, and on the Form 1099T that is used to justify the non taxation of your 529 withdrawal. You can handle all the college related stuff on just the student’s 1040, without complications on yours. Everything is nice and neat - one name on every tax form: 1099Q, 1099T, 1040. On the other hand, it’s not so nice and neat if the check is payable to you, as the 1099Q will have your name, but the 1099T will have your child’s name, and this will cause nashing of teeth when you find in April that you must fill out extra forms, which are confusing, when you file your 1040.

theplayer11
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Re: How to pay college tuition from a 529?

Post by theplayer11 » Sun Jun 24, 2018 4:51 pm

Leesbro63 wrote:
Fri Feb 09, 2018 10:11 am
I've had a lot of experience with this. For Boglehead-type parents with at least upper middle class incomes, I suggest having the check made out to your kid or to the school. If the check is made out to the parent, it will be reported via Form 1099-Q in the parent's Social Security number. Which often triggers IRS nastygrams that assesses tax, interest and penalties which all assume that the money is taxable. Because it appears that the IRS has no way of matching the school's reporting of tuition and fees due via the child's SS number to the 529 plan's payment to the parent in the parent's SS number. So the IRS computers just "see" a 529 withdrawal that the parent did not report, and treats it like any other 1099 that has income that doesn't match up with what they get from the financial institution.

The burden then is on the parent-taxpayer to prove it's not taxable income. Which isn't too hard, but is a royal pain in the neck. Even if paid to the student you might get an IRS nastygram, but, in my experience the odds are way less, the threatened amount due is less and proving that "I'm a student/same SS number for both 529 and college 1098-T" is easier than having the 1098-T to the student's SS and the 1099 from the 529 in the parent's.
+1..payable to beneficiary

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Re: How to pay college tuition from a 529?

Post by marcopolo » Sun Jun 24, 2018 5:18 pm

theplayer11 wrote:
Sun Jun 24, 2018 4:51 pm
Leesbro63 wrote:
Fri Feb 09, 2018 10:11 am
I've had a lot of experience with this. For Boglehead-type parents with at least upper middle class incomes, I suggest having the check made out to your kid or to the school. If the check is made out to the parent, it will be reported via Form 1099-Q in the parent's Social Security number. Which often triggers IRS nastygrams that assesses tax, interest and penalties which all assume that the money is taxable. Because it appears that the IRS has no way of matching the school's reporting of tuition and fees due via the child's SS number to the 529 plan's payment to the parent in the parent's SS number. So the IRS computers just "see" a 529 withdrawal that the parent did not report, and treats it like any other 1099 that has income that doesn't match up with what they get from the financial institution.

The burden then is on the parent-taxpayer to prove it's not taxable income. Which isn't too hard, but is a royal pain in the neck. Even if paid to the student you might get an IRS nastygram, but, in my experience the odds are way less, the threatened amount due is less and proving that "I'm a student/same SS number for both 529 and college 1098-T" is easier than having the 1098-T to the student's SS and the 1099 from the 529 in the parent's.
+1..payable to beneficiary
Agree on having funds paid to beneficiary. Hate the idea of checks.

Our 529s are with Fidelity. My kids have Fidelity CMA/Brokergae accounts.
I call Fidelity to transfer money from 529 to kids CMA. The funds are available next day.
The university allows ACH payment. Have link set up between kid's CMA account and University.
Once funds are available in kids CMA, kid initiates payment for Tuition/Fees to university.
All 1098T, 1099Q are in kid's name

The rest of the money transferred to CMA is available for kid to manage paying rent on apartment, food, etc., throughout the semester all of which are QHEE, but not paid directly to university (typical once past freshman year). This also teaches kids about money management.
Once in a while you get shown the light, in the strangest of places if you look at it right.

WhiteMaxima
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Re: How to pay college tuition from a 529?

Post by WhiteMaxima » Sun Jun 24, 2018 5:21 pm

Can you pay university directly?

MnD
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Re: How to pay college tuition from a 529?

Post by MnD » Sun Jun 24, 2018 5:57 pm

I paid the colleges using a 2% cash back credit card for tuition and other things like housing and meal plans and books.
Annually I totaled up all 529-qualified expenses for each kid and near year-end I made 529 contributions in that amount. Then waited 3 days or whatever the minimum was and then made a 529 qualified withdrawal from the 529 in that same amount.
So I got the state income tax deduction for 100% of 529-qualified expenses and the 2% cash back for categories that took cards.

As someone mentioned upthread, there is no "linkage" or tracking between the 1009-Q and the 1098-T, and the 1098-T doesn't include all qualified 529-qualified expenses. And yes if you were wondering, my state if one of of the 5 doesn't limit the annual contributions to 529's other than a maximum account balance of $350K and also doesn't apply any "net" contribution test.

WhiteMaxima
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Re: How to pay college tuition from a 529?

Post by WhiteMaxima » Sun Jun 24, 2018 10:14 pm

MnD wrote:
Sun Jun 24, 2018 5:57 pm
I paid the colleges using a 2% cash back credit card for tuition and other things like housing and meal plans and books.
Annually I totaled up all 529-qualified expenses for each kid and near year-end I made 529 contributions in that amount. Then waited 3 days or whatever the minimum was and then made a 529 qualified withdrawal from the 529 in that same amount.
So I got the state income tax deduction for 100% of 529-qualified expenses and the 2% cash back for categories that took cards.

As someone mentioned upthread, there is no "linkage" or tracking between the 1009-Q and the 1098-T, and the 1098-T doesn't include all qualified 529-qualified expenses. And yes if you were wondering, my state if one of of the 5 doesn't limit the annual contributions to 529's other than a maximum account balance of $350K and also doesn't apply any "net" contribution test.
Does university charge service fee if you pay by credit card?

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Misenplace
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Re: How to pay college tuition from a 529?

Post by Misenplace » Sun Jun 24, 2018 10:47 pm

The University our one and only attends does not take credit cards, or I would have put the tuition on my 2% cash back Fidelity card. So instead I have Vanguard 529 admins cut a check directly to the university, and include student ID no. on the memo. Tax forms all come out on student’s SS#, so tax time is clean and easy. I always pay/gift at least 4K of tuition directly to the university out of my account, to avoid gift tax issues and so as to keep the ability to claim AOTC. First year of college this came in handy, but second year the tuition deduction made more sense. Economically, of course.

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GoldStar
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Re: How to pay college tuition from a 529?

Post by GoldStar » Mon Jun 25, 2018 6:27 am

Leesbro63 wrote:
Fri Feb 09, 2018 10:11 am
I've had a lot of experience with this. For Boglehead-type parents with at least upper middle class incomes, I suggest having the check made out to your kid or to the school. If the check is made out to the parent, it will be reported via Form 1099-Q in the parent's Social Security number. Which often triggers IRS nastygrams that assesses tax, interest and penalties which all assume that the money is taxable. Because it appears that the IRS has no way of matching the school's reporting of tuition and fees due via the child's SS number to the 529 plan's payment to the parent in the parent's SS number. So the IRS computers just "see" a 529 withdrawal that the parent did not report, and treats it like any other 1099 that has income that doesn't match up with what they get from the financial institution.

The burden then is on the parent-taxpayer to prove it's not taxable income. Which isn't too hard, but is a royal pain in the neck. Even if paid to the student you might get an IRS nastygram, but, in my experience the odds are way less, the threatened amount due is less and proving that "I'm a student/same SS number for both 529 and college 1098-T" is easier than having the 1098-T to the student's SS and the 1099 from the 529 in the parent's.
Well the IRS could match the 1099Q that is in my name to the 1099T in my child's name since both our SS#s are on the same tax return (since I claim my children as dependents in college). I assume this has been the case since I've never had a problem paying the school directly and then withdrawing the money from 529 in my name to reimburse myself. I've done this over a dozen times and no inquiries from the IRS.

alrick
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Re: How to pay college tuition from a 529?

Post by alrick » Mon Jun 25, 2018 7:07 am

If you pay grandchild's tuition/fee/room/board college expenses directly to the institution, and then seek 529 reimbursement to yourself, what is the effect on the FAFSA for the child/parents?

I believe that if payments from a 529 account are made directly to the institution, this resource would have an effect on the child's financial aid.

Other threads note the relative advantage of having the parent own the 529 vs. ownership by the grandparent. Does using the 529 reimbursement route "mask" the existence of the 529 from consideration in the institution's review of family resources for the purpose of determining their financial aid award to the child/family??

Leesbro63
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Re: How to pay college tuition from a 529?

Post by Leesbro63 » Mon Jun 25, 2018 3:08 pm

alrick wrote:
Mon Jun 25, 2018 7:07 am
If you pay grandchild's tuition/fee/room/board college expenses directly to the institution, and then seek 529 reimbursement to yourself, what is the effect on the FAFSA for the child/parents?

I believe that if payments from a 529 account are made directly to the institution, this resource would have an effect on the child's financial aid.

Other threads note the relative advantage of having the parent own the 529 vs. ownership by the grandparent. Does using the 529 reimbursement route "mask" the existence of the 529 from consideration in the institution's review of family resources for the purpose of determining their financial aid award to the child/family??
I believe the issue boils down to withdrawing from the 529, regardless of who owns it. This will trigger reporting in the beneficiary's social security number. This will be income that must be legally included on the next years FAFSA (even if it doesn't trigger reporting), I believe. I'm fairly sure that it won't matter for the first year, because FAFSA is based on a look back to the prior year's income.

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GoldStar
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Re: How to pay college tuition from a 529?

Post by GoldStar » Mon Jun 25, 2018 3:14 pm

Leesbro63 wrote:
Mon Jun 25, 2018 3:08 pm
alrick wrote:
Mon Jun 25, 2018 7:07 am
If you pay grandchild's tuition/fee/room/board college expenses directly to the institution, and then seek 529 reimbursement to yourself, what is the effect on the FAFSA for the child/parents?

I believe that if payments from a 529 account are made directly to the institution, this resource would have an effect on the child's financial aid.

Other threads note the relative advantage of having the parent own the 529 vs. ownership by the grandparent. Does using the 529 reimbursement route "mask" the existence of the 529 from consideration in the institution's review of family resources for the purpose of determining their financial aid award to the child/family??
I believe the issue boils down to withdrawing from the 529, regardless of who owns it. This will trigger reporting in the beneficiary's social security number. This will be income that must be legally included on the next years FAFSA (even if it doesn't trigger reporting), I believe. I'm fairly sure that it won't matter for the first year, because FAFSA is based on a look back to the prior year's income.
529 to a beneficiary isn't considered income, no.

Horsefly
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Re: How to pay college tuition from a 529?

Post by Horsefly » Mon Jun 25, 2018 3:29 pm

For both our daughters we had the 529 ACH funds to my bank account, and that is the only way I would ever do it. We paid the tuition / fees on-line with a credit card, and even though it cost me an extra 0.75 percent or so, I thought it was worth it for the convenience. No checks out if the 529, and no checks from me (I hate checks).

There was one year that the IRS thought my 529 withdrawals for one daughter were non-qualified, but that was easily remedied simply by sending them the on-line receipts for tuition and fees. Turns out the 529 plan had mis-coded my withdrawals that year as non-qualified.

Leesbro63
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Re: How to pay college tuition from a 529?

Post by Leesbro63 » Mon Jun 25, 2018 4:10 pm

GoldStar wrote:
Mon Jun 25, 2018 3:14 pm
Leesbro63 wrote:
Mon Jun 25, 2018 3:08 pm
alrick wrote:
Mon Jun 25, 2018 7:07 am
If you pay grandchild's tuition/fee/room/board college expenses directly to the institution, and then seek 529 reimbursement to yourself, what is the effect on the FAFSA for the child/parents?

I believe that if payments from a 529 account are made directly to the institution, this resource would have an effect on the child's financial aid.

Other threads note the relative advantage of having the parent own the 529 vs. ownership by the grandparent. Does using the 529 reimbursement route "mask" the existence of the 529 from consideration in the institution's review of family resources for the purpose of determining their financial aid award to the child/family??
I believe the issue boils down to withdrawing from the 529, regardless of who owns it. This will trigger reporting in the beneficiary's social security number. This will be income that must be legally included on the next years FAFSA (even if it doesn't trigger reporting), I believe. I'm fairly sure that it won't matter for the first year, because FAFSA is based on a look back to the prior year's income.
529 to a beneficiary isn't considered income, no.

From this site, see this:

https://www.savingforcollege.com/articl ... ancial-aid


Withdrawals
529 plan distributions are another area where the effect on financial aid will depend on the account owner. With a parent- or student-owned plan, 529 withdrawals used to pay for college will not be reported on the FAFSA. That means if you liquidate your account to pay for your child's sophomore year, there will be no effect on a subsequent year's FAFSA.

But the situation gets a little stickier when the account is owned by a grandparent or other relative. The student will have nothing to report on the FAFSA while the money is sitting in a grandparent-owned 529 plan, but any withdrawals used to pay for their college will be counted as untaxed income on the FAFSA. Let's say a grandmother wants to cover a full year of her grandson's tuition at a private college, which costs $45,000. He'll be a freshman in 2017, and he plans on applying for financial aid every year. On his first and second FAFSA, he'll have nothing to report, but when he applies for federal aid for the 2019-20 school year (when he's required to report prior-prior year income) his untaxed student income that was generated from Grandma's gift may reduce his aid package by as much as $22,500 – Yikes!

Horsefly
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Re: How to pay college tuition from a 529?

Post by Horsefly » Mon Jun 25, 2018 4:39 pm

livesoft wrote:
Sun Jun 24, 2018 12:20 pm
I can speculate that I never had an IRS problem because the 1098-T always showed way more expenses than the 1099-Q showed for a withdrawal. That's because I did not come close to paying all the expenses with a 529 plan. Furthermore, my students mostly lived off campus so room and board did not show up on the 1098-T either. We always claimed the American Opportunity Tax Credit, too.
Careful. You could only use the American Opportunity Tax Credit (or the similar Lifetime Learning Credit) for the amount of educational expense that was over and above what you used the 529 for. I.e., you can't pay for the tuition with a 529 *AND* claim the AOTC for that same tuition.

Our tax guy was trying to give my daughter the Lifetime Learning Credit when he did our family's taxes. When I reviewed the rules before we all signed the returns I found that what she was doing would have been double-dipping, and would have resulted in revoking the credit and a penalty.

Of course, it all may not matter now, as I think the AOTC expired at the end of last year.

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