Need Help - College Funding Plan

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Need Help - College Funding Plan

Post by RRJeff » Sun Jun 28, 2020 5:15 pm

Seeking help from the experienced Bogleheads out there! My son is planning to attend college as a freshman in the fall at a state university. Estimated expenses per year are $24k (tuition, room and board, books). This number was provided by the university.

We have ~$50k in a 529 that we started when DS was born (he is our only child). Grandparents have significantly more $ in a 529 with son as beneficiary. We are blessed that son's undergraduate expenses should be completely covered by 529 funds.

Now for the questions: I have been reading about the AOTC and have seen recommendations about paying the first $4k tuition expenses out of pocket to capture the $2500.00 per year credit. Does it still make sense to do this if there are enough 529 funds to cover all projected expenses?

Is there a recommended order in which to tap 529 funds? Should be tap our 529 for the first 2 years of expenses, then tap the grandparents' for years 3-4+?

If we use funds from grandparents' 529, they have suggested that we open a checking account specifically for them to transfer funds into. Is this necessary, or recommended? I think this is what they have done with my sister's kids that are in college now, and that is why they are recommending it.

Any other tips on this greatly appreciated!


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Re: Need Help - College Funding Plan

Post by fabdog » Mon Jun 29, 2020 8:27 am

you can do both... pay the expenses from the 529... and then let your tax software expose $10K of the spending to taxes... it will make the gain on the $10K ordinary income, taxed at your marginal rate, then give you the $4K AOTC... you come out ahead on this. Turbo tax I know specifically has this setup and will even ask you in interview.

That covers money in the 529 in you or spouses name... the grandparents I'd have to do more research on... the withdrawal should get reported on your son's SSN, not the grandparents... and then you report on your return if he is your dependent

use the search box in upper right corner for more threads and details on this approach


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Re: Need Help - College Funding Plan

Post by SchruteB&B » Mon Jun 29, 2020 9:33 am

AOTC only available below certain income level, so step 1 is to insure you actually can take it.

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