child starting college this fall - what do I need to know & do?

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feh
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child starting college this fall - what do I need to know & do?

Post by feh » Mon Apr 16, 2018 10:50 am

Hello folks.

My son has decided where to attend. His parents will be paying the full cost (4 years estimated to be $100K). He's our only child, so I'm wondering if there are any resources online that would help us with the financial aspects of attendance. As in, a check list, or topics to consider.

Some specifics:
  • he won't be receiving any scholarships or financial aid
  • the 529 account has $80K in it
  • the 529 account is not associated with our state of residence
A couple questions:
  • for the amount not already funded, are there gifting (or other) strategies that can be advantageous from a tax perspective?
  • should we open a state of residence 529 to fund the outstanding cost (~$20K), for no other reason than the state tax deduction?
Thanks.

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Pajamas
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Re: child starting college this fall - what do I need to know & do?

Post by Pajamas » Mon Apr 16, 2018 10:55 am

Start with familiarizing yourself with the IRS information on possible tax benefits:

https://www.irs.gov/newsroom/irs-remind ... -on-irsgov

markcoop
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Re: child starting college this fall - what do I need to know & do?

Post by markcoop » Mon Apr 16, 2018 11:00 am

Pajamas wrote:
Mon Apr 16, 2018 10:55 am
Start with familiarizing yourself with the IRS information on possible tax benefits:

https://www.irs.gov/newsroom/irs-remind ... -on-irsgov
For me, the American Opportunity Tax Credit was the biggest thing to consider. For the first 4 years, I needed to not pay $4,000 of my child's bill using 529 funds to take advantage of $2,500 credit on my taxes every year. For 4 years, that's $16,000 that needs to come out of pocket. Given that you need only $20,000 more to fund, sounds like you may be very close to it.
Mark

feh
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Re: child starting college this fall - what do I need to know & do?

Post by feh » Mon Apr 16, 2018 11:20 am

markcoop wrote:
Mon Apr 16, 2018 11:00 am
Pajamas wrote:
Mon Apr 16, 2018 10:55 am
Start with familiarizing yourself with the IRS information on possible tax benefits:

https://www.irs.gov/newsroom/irs-remind ... -on-irsgov
For me, the American Opportunity Tax Credit was the biggest thing to consider. For the first 4 years, I needed to not pay $4,000 of my child's bill using 529 funds to take advantage of $2,500 credit on my taxes every year. For 4 years, that's $16,000 that needs to come out of pocket. Given that you need only $20,000 more to fund, sounds like you may be very close to it.
Ooh, very useful info! Thanks.

And just to clarify, because I didn't see this on the page linked to above - the $4K must come out of pocket?

SimonJester
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Re: child starting college this fall - what do I need to know & do?

Post by SimonJester » Mon Apr 16, 2018 4:12 pm

feh wrote:
Mon Apr 16, 2018 11:20 am
And just to clarify, because I didn't see this on the page linked to above - the $4K must come out of pocket?
Yes you cannot claim the credit for any amount you withdraw from the 529, of get from scholarships, grants etc.
Its only money spend on tuition, NOT room and board
https://www.irs.gov/credits-deductions/individuals/aotc


Have you filled out the FAFSA? You mentioned you did not plan on any financial aid, however many school require you to still fill out the FAFSA.

https://fafsa.ed.gov/
"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." - Benjamin Franklin

feh
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Re: child starting college this fall - what do I need to know & do?

Post by feh » Mon Apr 16, 2018 4:47 pm

SimonJester wrote:
Mon Apr 16, 2018 4:12 pm

Have you filled out the FAFSA? You mentioned you did not plan on any financial aid, however many school require you to still fill out the FAFSA.
Yup, we completed the FAFSA, even though we knew we weren't gonna get anything.

Nate79
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Re: child starting college this fall - what do I need to know & do?

Post by Nate79 » Mon Apr 16, 2018 5:22 pm

he won't be receiving any scholarships or financial aid
Why not? How many scholarships did he apply for? He should apply for as many as possible to help make up for the shortfall in funds.

harvestbook
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Re: child starting college this fall - what do I need to know & do?

Post by harvestbook » Mon Apr 16, 2018 5:49 pm

If you get a state tax deduction, I'd do a 529 for the remaining amount after factoring in the American Opportunity Tax Credit. So it sounds like only $4,000 left, which may not be worth the trouble, but every dollar helps.
I'm not smart enough to know, and I can't afford to guess.

smitcat
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Re: child starting college this fall - what do I need to know & do?

Post by smitcat » Mon Apr 16, 2018 7:31 pm

Some things to think about that we learned from our daughter who just graduated a few years back...
- she received a 'scholarship' of $2K per year just for the area of the country she originated from
- she applied for and received a 'leadership' scholarship that she learned about from our admissions contact
- she was employed by the school from sophomore year forward (admissions, tours, tutoring, athletic dept.)
- She was a resident assistant her senior year

All of these plus her academic scholarship ended up being substantial - research all avenues before and after attending.
Become close with someone in admissions and explore the possibilities as most are unaware of the extent of some of these things.

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Watty
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Re: child starting college this fall - what do I need to know & do?

Post by Watty » Mon Apr 16, 2018 8:54 pm

Several things;

1) You can use tax software to make dummy tax returns, including your state taxes, to the impact of various spending plans. It will be approximate because you will be using last years tax laws but it can still be useful.

2) I don't remember all the rules but payments that can be made in December or January may allow you to select which tax year works best for you.

3) Since he will start in the fall and graduate in the spring the college expenses will be spread over five tax years. The year they graduate you may not be able to claim them as a dependent so when you get closer you will need to consider the implications of that.

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beyou
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Re: child starting college this fall - what do I need to know & do?

Post by beyou » Mon Apr 16, 2018 10:23 pm

What state ? If NY (guessing because few states are that inexpensive), putting $10k/yr for next 2 years gets you a nice state income tax deduction via NYS 529.

Pay the school directly as much as possible, rather than to your kid. Avoid any doubt that 529 was used for educational expenses. 529 plans can pay the school directly.

OhioGozaimas
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Re: child starting college this fall - what do I need to know & do?

Post by OhioGozaimas » Tue Apr 17, 2018 11:18 am

I suggest that the account owner (parent) take 529 distributions and pay the bills directly. I believe this is the only way to assure that the parent receives the 1099-Q forms, to maintain a complete, clear educational expense paper trail. IIRC, distributions sent to the school (or the beneficiary), cause the 1099-Qs to be sent to the beneficiary.
Map out your future – but do it in pencil. – Jon Bon Jovi

feh
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Re: child starting college this fall - what do I need to know & do?

Post by feh » Tue Apr 17, 2018 11:25 am

Pajamas wrote:
Mon Apr 16, 2018 10:55 am
Start with familiarizing yourself with the IRS information on possible tax benefits:

https://www.irs.gov/newsroom/irs-remind ... -on-irsgov
Please confirm - looking at that page, you can claim only the AOTC or the Lifetime Learner Credit, but not both.

Correct?

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Pajamas
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Re: child starting college this fall - what do I need to know & do?

Post by Pajamas » Tue Apr 17, 2018 11:36 am

feh wrote:
Tue Apr 17, 2018 11:25 am
Pajamas wrote:
Mon Apr 16, 2018 10:55 am
Start with familiarizing yourself with the IRS information on possible tax benefits:

https://www.irs.gov/newsroom/irs-remind ... -on-irsgov
Please confirm - looking at that page, you can claim only the AOTC or the Lifetime Learner Credit, but not both.

Correct?
Right. AOTC would be best if you qualify.

bsquared
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Re: child starting college this fall - what do I need to know & do?

Post by bsquared » Thu Apr 26, 2018 12:12 pm

I'm trying to help my daughter (using TurboTax) to enter data for the AOTC or other credits/deductions available re my granddaughter's college tuition/expenses. TT says she is not eligible for the AOTC. I've been going in through "forms" and printing out what I think is relevant to see what is missing/incorrect. Could the problem be that the mother/daughter returns were "connected" before some data was entered and are therefore incomplete? Form 8863 is not there for either return. Granddaughter is claiming scholarship money as income, daughter to take the credit. I would appreciate any help I can get. Thanks.

Katietsu
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Re: child starting college this fall - what do I need to know & do?

Post by Katietsu » Thu Apr 26, 2018 1:30 pm

bsquared wrote:
Thu Apr 26, 2018 12:12 pm
I'm trying to help my daughter (using TurboTax) to enter data for the AOTC or other credits/deductions available re my granddaughter's college tuition/expenses. TT says she is not eligible for the AOTC. I've been going in through "forms" and printing out what I think is relevant to see what is missing/incorrect. Could the problem be that the mother/daughter returns were "connected" before some data was entered and are therefore incomplete? Form 8863 is not there for either return. Granddaughter is claiming scholarship money as income, daughter to take the credit. I would appreciate any help I can get. Thanks.
A few common reasons:
1) Is your daughter’s income above the threshold AGI? Disqualifying
2) Is your daughter’s filing status Married filing separate? Disqualifying
3) There is a question asking if the AOTC has been claimed already for four years. This question is phrased in a confusing way and is very easy to answer incorrectly. Go back and check on that.
4) Were there any qualified expenses paid for with taxable money? In other words, was non taxable scholarship money used to pay for all tuition and books? Or did grand daughter use scholarship money for room and board while using outside money for tuition? Maybe start a separate thread if there is still a question.

Katietsu
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Re: child starting college this fall - what do I need to know & do?

Post by Katietsu » Thu Apr 26, 2018 1:36 pm

To OP: 1) Make sure any money taken out of 529 is used for qualified expenses in the same year as the withdrawal. The most common mistake here is to a withdrawal at the end of December and not pay tuition until beginning of January. This can have very bad consequences.
2) Consider setting up a separate bank account to be used only for qualified expenses. This becomes particularly useful if the student moves off campus or drops off the campus dining plan. You will then need to be tracking rent and food to justify the 529 plan withdrawal. You will also need the financial aid department to give you the max allowed for off campus room and board.

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