529 Withdrawal. Last 5 months of college

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ram
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529 Withdrawal. Last 5 months of college

Post by ram »

My daughter graduated from Medical school in the second half of May 2019. She had a full tuition scholarship and so we did not pay any tuition. Her living expenses for the 4.5 to 5 months were approx 14000 and the published expected living expenses by the university are about the same.

In prior years while filling the questions on Turbo tax internet version I recall one question:
" Was the student a student for at least 6 months of the year". The answer this year will be "No".
I do not know if this question is for tax credits or for eligibility for 529 withdrawals.

My question is "Can I withdraw the 14000 from her 529 account?"

I have not yet withdrawn the money. I assume that I am allowed to withdraw it till Dec 31 of this year.

If it matters: she is >26 yrs old and in 2019 she will not be a dependent on us. (Started making money from June 2019)
Ram
delamer
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Re: 529 Withdrawal. Last 5 months of college

Post by delamer »

There is no requirement that 529 funds can only be used for a student who is full-time for the entire calendar year.
AllMostThere
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Re: 529 Withdrawal. Last 5 months of college

Post by AllMostThere »

This is a great question around the reporting intricacies with a 529. I will be monitoring the feedback as my DD will be starting college next fall and will also need to navigate this winding maze of requirements. As I write this response, it occurs to me to question; What did you do for the 3-4 months of tuition and living expenses when your DD started college in the fall of 1st year? :confused
marcopolo
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Re: 529 Withdrawal. Last 5 months of college

Post by marcopolo »

the intricacies of various college funding mechanisms are complex enough without creating issues where none exist.

There is no requirement for full year, or even 6 month enrollment to have qualified educational expenses that you can tap 529 plan to pay for those expenses.

Even summer courses, sporadic continued education course, etc. are considered qualified expenses.
Once in a while you get shown the light, in the strangest of places if you look at it right.
livesoft
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Re: 529 Withdrawal. Last 5 months of college

Post by livesoft »

There is a requirement for
Publication 970 wrote: Qualified Higher Education Expenses
These are expenses related to enrollment or attendance
at an eligible postsecondary school. As shown in the following list, to be qualified, some of the expenses must be
required by the school and some must be incurred by students who are enrolled at least half-time, defined later.
[...]
Half-time student. A student is enrolled “at least
half-time” if he or she is enrolled for at least half the
full-time academic work load for the course of study the
student is pursuing, as determined under the standards of
the school where the student is enrolled.
The ellipsis (the [...]) that I left out describes expenses for which the student does not need to be a half-time student and the expenses for which the students needs to be a half-time student. I take that to mean that the student cannot take one course per semester when a typical load is 5 courses per semester. But the student can be enrolled for only one semester in a tax year and take 3 courses that semester and use 529 money for room & board expenses.
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marcopolo
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Re: 529 Withdrawal. Last 5 months of college

Post by marcopolo »

livesoft wrote: Sun Dec 15, 2019 7:15 pm There is a requirement for
Publication 970 wrote: Qualified Higher Education Expenses
These are expenses related to enrollment or attendance
at an eligible postsecondary school. As shown in the following list, to be qualified, some of the expenses must be
required by the school and some must be incurred by students who are enrolled at least half-time, defined later.
[...]
Half-time student. A student is enrolled “at least
half-time” if he or she is enrolled for at least half the
full-time academic work load for the course of study the
student is pursuing, as determined under the standards of
the school where the student is enrolled.
The ellipsis (the [...]) that I left out describes expenses for which the student does not need to be a half-time student and the expenses for which the students needs to be a half-time student. I take that to mean that the student cannot take one course per semester when a typical load is 5 courses per semester. But the student can be enrolled for only one semester in a tax year and take 3 courses that semester and use 529 money for room & board expenses.
Yes. I believe that is evaluated on a per academic period basis, and only applies to room and board. Tuition is always a qualified expense regardless of course load. I believe most colleges require at least 1/2 load to live in university housing. I suspect that restriction is there to keep people from doing things like using the 529 funds to pay their rent by taking a 1 credit course at a local community college.

Certainly there is no issue for students starting and finishing their college careers in mid-year increments, which is what the concerns above were about. The vast majority of students do that.
Once in a while you get shown the light, in the strangest of places if you look at it right.
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ram
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Re: 529 Withdrawal. Last 5 months of college

Post by ram »

Thanks everybody. I believe I can withdraw the money by the end of the year.
Ram
PatrickA5
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Re: 529 Withdrawal. Last 5 months of college

Post by PatrickA5 »

Was that $14,000 actually spent on Room and Board for one semester? In my experience (Med school might be different), the Cost of Attendance is for a full year. If the student only goes one semester, I believe only half of that yearly allowance would be qualified for 529 withdrawals. Also, you have to have actually spent at least that much money - you can't take out of a 529 what you didn't actually spend, regardless of what the Cost of Attendance allowance is.

At least that's the way I've always understood it. Correct me if I'm wrong.
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ram
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Re: 529 Withdrawal. Last 5 months of college

Post by ram »

Your understanding is correct.
Living costs in Med school are much higher than for undergrad. Includes maintaining a car to go between the school and different hospitals. Public transportation is not available at midnite or 5 AM.
Also during the last 2 semesters you travel all across the country for residency interviews.
Ram
SchruteB&B
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Re: 529 Withdrawal. Last 5 months of college

Post by SchruteB&B »

ram wrote: Tue Dec 17, 2019 8:28 pm Your understanding is correct.
Living costs in Med school are much higher than for undergrad. Includes maintaining a car to go between the school and different hospitals. Public transportation is not available at midnite or 5 AM.
Also during the last 2 semesters you travel all across the country for residency interviews.
Transportation costs are not qualified education expenses, even though universities do usually include them in the cost of attendance.

https://www.savingforcollege.com/articl ... avel-costs
Clarice
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Re: 529 Withdrawal. Last 5 months of college

Post by Clarice »

Every 529 post leaves me wondering: ‘does the IRS really care about these nuances or do they have bigger fish to fry?’ I then conclude the latter, admittedly because it’s what I want to hear.
camden
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Re: 529 Withdrawal. Last 5 months of college

Post by camden »

Full tuition scholarships to medical school fall into two categories; from the military (requiring a four year service requirement at some point after graduation) or very, very rare. If it is the first, she will be paying us all back by her service. If it is the second, she hit the lottery. Either way, she will be entering her post residency practice years in an enviable financial situation relative to the vast majority of her peers. Congrats.
PatrickA5
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Re: 529 Withdrawal. Last 5 months of college

Post by PatrickA5 »

Clarice wrote: Tue Dec 17, 2019 11:02 pm Every 529 post leaves me wondering: ‘does the IRS really care about these nuances or do they have bigger fish to fry?’ I then conclude the latter, admittedly because it’s what I want to hear.
They care.

I once got a letter from the IRS basically claiming that the entire amount of the 1099Q I received was taxable. I ended up having to send them proof of all of my daughters expenses. Fortunately, I keep a very detailed spreadsheet and keep all receipts, bursar statements, etc.

Having said that, I've been doing this 529 thing for 10 years now between 3 kids and I've only had to prove it once, so the odds are probably pretty good that they won't "care" about your particular situation. Having said that, I sure was glad I kept everything. It was almost 3 years after the fact that they asked for the proof.
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ram
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Re: 529 Withdrawal. Last 5 months of college

Post by ram »

SchruteB&B wrote: Tue Dec 17, 2019 8:32 pm
ram wrote: Tue Dec 17, 2019 8:28 pm Your understanding is correct.
Living costs in Med school are much higher than for undergrad. Includes maintaining a car to go between the school and different hospitals. Public transportation is not available at midnite or 5 AM.
Also during the last 2 semesters you travel all across the country for residency interviews.
Transportation costs are not qualified education expenses, even though universities do usually include them in the cost of attendance.

https://www.savingforcollege.com/articl ... avel-costs
Thanks for the info. I did not know this.

My opinion may not matter. But I would argue that going from the university to the hospital is like going from one work location to another.

I believe that for self employed people IRS allows deduction for going from one work location to another but going from home to work is not deductible.
Last edited by ram on Thu Dec 19, 2019 11:42 pm, edited 1 time in total.
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Re: 529 Withdrawal. Last 5 months of college

Post by ram »

camden wrote: Wed Dec 18, 2019 9:05 am Full tuition scholarships to medical school fall into two categories; from the military (requiring a four year service requirement at some point after graduation) or very, very rare. If it is the first, she will be paying us all back by her service. If it is the second, she hit the lottery. Either way, she will be entering her post residency practice years in an enviable financial situation relative to the vast majority of her peers. Congrats.
1. She is in the very very rare category.
2. I agree with you completely. She will have no educational loans and I think that a physician in late twenties or early thirties with a net worth of $0 is probably above the 95th percentile of his/her peers.
Ram
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