Purchasing computers for student under 529 plan

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4eaxfm
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Purchasing computers for student under 529 plan

Post by 4eaxfm »

DS will be graduating high school and going off to college next year with a well funded 529 account and I have some questions regarding computer equipment purchases and best practices for 529 eligibility:

Is there any issue with purchasing a computer for my college bound student during the year he starts college but prior to actually graduating from high school? If I see a screaming deal on a laptop I want to pounce on in January '21, will that purchase be a qualified 529 expense for his Fall '21 college start? Or should I hold off on a computer purchase until some trigger event, say, after enrollment or when the first tuition payment is made?

What is an acceptable amount for computer expenses? Between a desktop, laptop, and perhaps an iPad, one could be laying out thousands pretty easily.

What is an acceptable frequency for computer expenses? If high school is any indication, between spilled drinks and unintended drop tests, DS will probably be going through laptops once a year. Will annual computer expenses raise red flags? Should I plan on maintaining a graveyard of dead laptops to prove I'm not handing down fully functional prior year laptops to other family members?
cjclueless
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Re: Purchasing computers for student under 529 plan

Post by cjclueless »

Yes, you can purchase the computer in 2021 and that is a legit use of 529. Just try to keep track of eligible outlays by calendar year, not academic year. Your only risk would be buying the computer early then him not enrolling in college which would likely be a non qualified distribution.

I am not sure of published guidance on the max amount allowed but I haven't read the regs in awhile.

I would suspect that your child will have little use (or room) for a desktop, a laptop and an iPad. Most college students do just fine on a decent laptop and maybe an iPad.

As for spills (!) I would strongly recommend one of the student property insurance policies that cover not only theft/fire/etc but also accidental damage such as drops and such. This would apply to any of their property and policies let you choose the max coverage amount. After your second claim they will ditch you, but there's a competitor willing to pick up the business. It is a good idea to at least do a video inventory of their stuff before packing it off to school. They will also sell multi-year policies and coverage continues during holidays and breaks.

CJ
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CAsage
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Re: Purchasing computers for student under 529 plan

Post by CAsage »

529 accounts are not limited to High School; I paid for my son's Desktop PC with 529 funds while he was in high school. Hopefully good for a couple years!
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.
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4eaxfm
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Re: Purchasing computers for student under 529 plan

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cjclueless wrote: Tue Aug 18, 2020 12:52 pm Yes, you can purchase the computer in 2021 and that is a legit use of 529. Just try to keep track of eligible outlays by calendar year, not academic year. Your only risk would be buying the computer early then him not enrolling in college which would likely be a non qualified distribution.
Oh he's going to college. :) More seriously, I'll wait on requesting a distribution until after he's enrolled. I'd rather risk paying for it out of pocket than risk a non qualified distribution.
I would suspect that your child will have little use (or room) for a desktop, a laptop and an iPad. Most college students do just fine on a decent laptop and maybe an iPad.
Probably true. I'm projecting a bit, as I dislike laptops with their tiny keyboards and screens and avoid them whenever possible.
As for spills (!) I would strongly recommend one of the student property insurance policies that cover not only theft/fire/etc but also accidental damage such as drops and such. This would apply to any of their property and policies let you choose the max coverage amount. After your second claim they will ditch you, but there's a competitor willing to pick up the business. It is a good idea to at least do a video inventory of their stuff before packing it off to school. They will also sell multi-year policies and coverage continues during holidays and breaks.

CJ
I will look into student property insurance for when DS goes off to college. Thank you for the suggestion!
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4eaxfm
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Re: Purchasing computers for student under 529 plan

Post by 4eaxfm »

CAsage wrote: Tue Aug 18, 2020 12:55 pm 529 accounts are not limited to High School; I paid for my son's Desktop PC with 529 funds while he was in high school. Hopefully good for a couple years!
Are you saying you purchased a computer with 529 funds for your son prior to the calendar year in which he started college?? This is the first time I'm hearing of such a qualified expense.
ChiKid24
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Re: Purchasing computers for student under 529 plan

Post by ChiKid24 »

4eaxfm wrote: Tue Aug 18, 2020 6:29 pm
CAsage wrote: Tue Aug 18, 2020 12:55 pm 529 accounts are not limited to High School; I paid for my son's Desktop PC with 529 funds while he was in high school. Hopefully good for a couple years!
Are you saying you purchased a computer with 529 funds for your son prior to the calendar year in which he started college?? This is the first time I'm hearing of such a qualified expense.
This is correct. Use of 529 plans were expanded by the tax changes in 2019. Now includes public or private expenses for elementary, middle and high school though these are capped at $10k/year. Additionally, I think you'd be OK purchasing it even without this expansion so long as the computer is used by the beneficiary during any of the years the beneficiary is at a qualified institution. Fidelity has a good article on all of this here: https://www.fidelity.com/learning-cente ... 9-spending
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Re: Purchasing computers for student under 529 plan

Post by puma »

ChiKid24 wrote: Tue Aug 18, 2020 6:36 pm
4eaxfm wrote: Tue Aug 18, 2020 6:29 pm
CAsage wrote: Tue Aug 18, 2020 12:55 pm 529 accounts are not limited to High School; I paid for my son's Desktop PC with 529 funds while he was in high school. Hopefully good for a couple years!
Are you saying you purchased a computer with 529 funds for your son prior to the calendar year in which he started college?? This is the first time I'm hearing of such a qualified expense.
This is correct. Use of 529 plans were expanded by the tax changes in 2019. Now includes public or private expenses for elementary, middle and high school though these are capped at $10k/year. Additionally, I think you'd be OK purchasing it even without this expansion so long as the computer is used by the beneficiary during any of the years the beneficiary is at a qualified institution. Fidelity has a good article on all of this here: https://www.fidelity.com/learning-cente ... 9-spending
This link just talks about K-12 tuition as eligible. Are other expenses for K-12 also eligible? Source?
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4eaxfm
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Re: Purchasing computers for student under 529 plan

Post by 4eaxfm »

puma wrote: Tue Aug 18, 2020 6:44 pm
ChiKid24 wrote: Tue Aug 18, 2020 6:36 pm
4eaxfm wrote: Tue Aug 18, 2020 6:29 pm
CAsage wrote: Tue Aug 18, 2020 12:55 pm 529 accounts are not limited to High School; I paid for my son's Desktop PC with 529 funds while he was in high school. Hopefully good for a couple years!
Are you saying you purchased a computer with 529 funds for your son prior to the calendar year in which he started college?? This is the first time I'm hearing of such a qualified expense.
This is correct. Use of 529 plans were expanded by the tax changes in 2019. Now includes public or private expenses for elementary, middle and high school though these are capped at $10k/year. Additionally, I think you'd be OK purchasing it even without this expansion so long as the computer is used by the beneficiary during any of the years the beneficiary is at a qualified institution. Fidelity has a good article on all of this here: https://www.fidelity.com/learning-cente ... 9-spending
This link just talks about K-12 tuition as eligible. Are other expenses for K-12 also eligible? Source?
I agree with Puma, that's what I am seeing as well:
" You can spend up to $10,000 from a 529 plan on tuition expenses for elementary, middle, or high school."

The reference to computer expenses states they are qualified expenses "during any of the years that the beneficiary is enrolled at an eligible educational institution", where eligible educational institutions are defined earlier as postsecondary:

"Money saved in a 529 plan can also be used to pay qualified expenses associated with college or other postsecondary training institutions. Eligible schools include any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the US Department of Education."

I'd love to be wrong on this!
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Re: Purchasing computers for student under 529 plan

Post by brad.clarkston »

4eaxfm wrote: Tue Aug 18, 2020 6:23 pm
cjclueless wrote: Tue Aug 18, 2020 12:52 pm Yes, you can purchase the computer in 2021 and that is a legit use of 529. Just try to keep track of eligible outlays by calendar year, not academic year. Your only risk would be buying the computer early then him not enrolling in college which would likely be a non qualified distribution.
Oh he's going to college. :) More seriously, I'll wait on requesting a distribution until after he's enrolled. I'd rather risk paying for it out of pocket than risk a non qualified distribution.
I would suspect that your child will have little use (or room) for a desktop, a laptop and an iPad. Most college students do just fine on a decent laptop and maybe an iPad.
Probably true. I'm projecting a bit, as I dislike laptops with their tiny keyboards and screens and avoid them whenever possible.

My son is a junior at S&T this year. As a freshman I bought him a cutting edge gaming laptop (cpu/gpu horsepower), a 2k 27" monitor, a decent keyboard-&-mouse, a really good chair, and the odds-&-ends (external harddrive, usb hubs, cables, chargers).

We took him back two weeks ago and all he took was the laptop, chair, odds-&-sods, o and one of my really crappy old 23" monitors because it was small and his 40" tv (xbox/switch). He's a RM this year so he gets a big room to himself so I ended buying a to nice folding couch, tv stand and shelf.

It looks like this year he's buying cooking supplies ...

The takeaway - other than the laptop it changes every year and there good at spending our money ;)
ChiKid24
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Re: Purchasing computers for student under 529 plan

Post by ChiKid24 »

4eaxfm wrote: Tue Aug 18, 2020 6:53 pm
puma wrote: Tue Aug 18, 2020 6:44 pm
ChiKid24 wrote: Tue Aug 18, 2020 6:36 pm
4eaxfm wrote: Tue Aug 18, 2020 6:29 pm
CAsage wrote: Tue Aug 18, 2020 12:55 pm 529 accounts are not limited to High School; I paid for my son's Desktop PC with 529 funds while he was in high school. Hopefully good for a couple years!
Are you saying you purchased a computer with 529 funds for your son prior to the calendar year in which he started college?? This is the first time I'm hearing of such a qualified expense.
This is correct. Use of 529 plans were expanded by the tax changes in 2019. Now includes public or private expenses for elementary, middle and high school though these are capped at $10k/year. Additionally, I think you'd be OK purchasing it even without this expansion so long as the computer is used by the beneficiary during any of the years the beneficiary is at a qualified institution. Fidelity has a good article on all of this here: https://www.fidelity.com/learning-cente ... 9-spending
This link just talks about K-12 tuition as eligible. Are other expenses for K-12 also eligible? Source?
I agree with Puma, that's what I am seeing as well:
" You can spend up to $10,000 from a 529 plan on tuition expenses for elementary, middle, or high school."

The reference to computer expenses states they are qualified expenses "during any of the years that the beneficiary is enrolled at an eligible educational institution", where eligible educational institutions are defined earlier as postsecondary:

"Money saved in a 529 plan can also be used to pay qualified expenses associated with college or other postsecondary training institutions. Eligible schools include any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the US Department of Education."

I'd love to be wrong on this!
Yeah rereading it does sound like only tuition expenses qualify for elementary, middle and high school. That said, I do think the language about laptop purchases is ambiguous. The language in the article doesn't say that the purchase has to be made in the year the beneficiary is at the institution. It says it's eligible if "used primarily by the beneficiary during any of the years that the beneficiary is enrolled at an eligible educational institution." To me that means it's the use that matters rather than the date of purchase. Of course this is just my interpretation of an article. I suppose the real answer lies somewhere in the tax code.
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Re: Purchasing computers for student under 529 plan

Post by Flyer24 »

Here is an article talking about buying computers with a 529 in high school. Note..it is only for tuition expenses.

https://thecollegeinvestor.com/21959/5 ... te-school/
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4eaxfm
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Re: Purchasing computers for student under 529 plan

Post by 4eaxfm »

Flyer24 wrote: Tue Aug 18, 2020 7:46 pm Here is an article talking about buying computers with a 529 in high school. Note..it is only for tuition expenses.

https://thecollegeinvestor.com/21959/5 ... te-school/
Thank you for the link Flyer24!
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4eaxfm
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Re: Purchasing computers for student under 529 plan

Post by 4eaxfm »

brad.clarkston wrote: Tue Aug 18, 2020 6:56 pm My son is a junior at S&T this year. As a freshman I bought him a cutting edge gaming laptop (cpu/gpu horsepower), a 2k 27" monitor, a decent keyboard-&-mouse, a really good chair, and the odds-&-ends (external harddrive, usb hubs, cables, chargers).

We took him back two weeks ago and all he took was the laptop, chair, odds-&-sods, o and one of my really crappy old 23" monitors because it was small and his 40" tv (xbox/switch). He's a RM this year so he gets a big room to himself so I ended buying a to nice folding couch, tv stand and shelf.

It looks like this year he's buying cooking supplies ...

The takeaway - other than the laptop it changes every year and there good at spending our money ;)
Thank you for the data point, and the laugh!
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Re: Purchasing computers for student under 529 plan

Post by neverpanic »

4eaxfm wrote: Tue Aug 18, 2020 5:49 am What is an acceptable amount for computer expenses? Between a desktop, laptop, and perhaps an iPad, one could be laying out thousands pretty easily.
The acceptable amount is a reasonable market price. You can spend whatever you need to within the absolute limit you have. And if the computer is used in college, then the qualifying standard is met.

Your 529 is there for you, but it cannot be used to pay for the school's health plan. There's a penalty if you do that (tax + 10% on any portion of earnings used).
I am not a financial professional or guru. I'm a schmuck who got lucky 10 times. Such is the life of the trader.
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Re: Purchasing computers for student under 529 plan

Post by brad.clarkston »

So I forgot to add - no I would not buy a laptop this year I would buy it the year the child goes to college as your going to want to buy something that should last at least 3 if not 4 years of hard use and buying early reduces that time frame.

Keep in mind that computers are not like they was back in our day gramps! ;) It's all commodity hardware at this point so a laptop from any of the large companies is going to be the same at the various price points (cpu/gpu/memory) so what your really trying to buy is the screen/keyboard/ergo requirements you want. Really at this point the difference between a Mac and a comparably priced dell is color and OS.

And those great deals are just about the same every year for the price points. I ended up with a $1200.00 Dell G7 15 - 7588 for the cpu/gpu and sacrificed a little on the screen. Between the nuclear eng program and the games he wanted to play it was the best option to stay out of the $2k price point.
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Re: Purchasing computers for student under 529 plan

Post by CAsage »

Even when I'm wrong, I appreciate this blog and learn so much! Yes, my son will be THRILLED to learn his computer will now definitely be going to college with him. Odd, with so many classes being held online, all his HS book being only on the ipad, that a computer isn't considered necessary. With the new "distance learning" during COVID-19, computers are an educational necessity in K-12.
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.
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