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Old 09-11-2020, 05:46 AM   #21
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I'd get the budget from the school for the type of student in question, withdraw the entire amount in one transaction (for the entire academic year, including spring semester) and move on with my life. You are not trying to "get away with anything". If the IRS asks, it will probably be a form letter. You'd send them whatever paperwork you have. And say you came up short of the total. So what. You refigure the tax. It's peanuts. The IRS isn't going to be interested in peanuts on a guy who's basically doing exactly what the law makers intended.
Actually, I think the lawmakers intended for people to basically reimburse themselves for money already spent. From what I understand you are only supposed to withdraw money for expenses already incurred in that calendar year. So for next spring 2021, I'd wait until at least January 2021, unless you can somehow pay the bill by the end of December. No point in doing something that you know won't hold up in an audit. I've been totaling up the money spent, including on a laptop and books, and making transfers from the 529 for the actual amounts spent, because what if the expected outlay changes? This way is a lot simpler.

And it's not just the tax, there's a 10% penalty, too.
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Old 09-11-2020, 06:39 AM   #22
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Actually, I think the lawmakers intended for people to basically reimburse themselves for money already spent. From what I understand you are only supposed to withdraw money for expenses already incurred in that calendar year.
There is nothing in 26 U.S. Code § 529 - Qualified tuition programs that says a 529 distribution must be preceded by the expense justifying the distribution. Even the linked Kiplinger article says only “The expense and the distribution must be in the same year.”
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Old 09-11-2020, 06:49 AM   #23
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I had read pub 970 quite a lot, and was going to write a spirited defense of my position, but in reviewing the relevant section I had missed the phrasing at the beginning of the paragraph in 3a where it says "Expenses for room and board must be incurred by students..."
Perhaps the important words in that sentence are "Expenses for room and board must be incurred by students who are enrolled at least half-time...."

It's not that the student has to pay. It also doesn't matter whether a parent writes a check to the school dormitory and dining halls for a campus-resident student, or pays the local grocery stores, utility companies, etc., for a live-at-home student.

Both situations provide legitimate room and board expenses.
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Old 09-11-2020, 07:02 AM   #24
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There is nothing in 26 U.S. Code § 529 - Qualified tuition programs that says a 529 distribution must be preceded by the expense justifying the distribution. Even the linked Kiplinger article says only “The expense and the distribution must be in the same year.”
Right, that's why I didn't say that you needed to do it that way, just that that's the easiest way to make sure that you don't overwithdraw, since there's a 10% penalty on top of taxes. I mostly meant to address the suggestion that someone withdraw funds now to be spent next year, which is definitely not allowed.
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Old 09-11-2020, 07:23 AM   #25
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The tuition for spring is typically paid before the end of the year, and is part of the preceding academic year. That aside, you will get different opinions on whether the timing must match. I've seen statements like the Kiplinger one and I've also seen other expert opinions that disagree with that statement. Last I looked, the IRS hasn't made definitive guidance.
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Old 09-11-2020, 10:44 PM   #26
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Originally Posted by The Cosmic Avenger View Post
Actually, I think the lawmakers intended for people to basically reimburse themselves for money already spent. From what I understand you are only supposed to withdraw money for expenses already incurred in that calendar year. So for next spring 2021, I'd wait until at least January 2021, unless you can somehow pay the bill by the end of December. No point in doing something that you know won't hold up in an audit. I've been totaling up the money spent, including on a laptop and books, and making transfers from the 529 for the actual amounts spent, because what if the expected outlay changes? This way is a lot simpler.

And it's not just the tax, there's a 10% penalty, too.
I do it the way you describe, for similar reasons. Although I rely on the IRS, not Kiplinger, for tax rules.

The issue with taking out costs for "next semester" in significant advance of them actually being incurred, is that the outlay might change *to the lesser*, so if you remove $10K from a 529 and the expense is only $8K, then you have $2K of non-qualified withdrawals. Not the biggest deal in the world, but then you do have more hassle and math to deal with.

With my kids, I don't try to predict any more. I thought I'd have three in college this fall, but one isn't going due to COVID. Another one was going to change meal plans and may also change schools. They can always add or drop credits, which can change the price. And this can happen with as little notice as "next semester".

The IRS does now allow you to recontribute an excess withdrawal back into either 529s or ESAs, or maybe both, but it has to be done within 60 days of the withdrawal.
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Old 09-12-2020, 08:48 AM   #27
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True, you can't recontribute in order to undo the tax consequences. But if you never add-up the expenditures, you don't know if you undershot or overshot or got it close enough for government work. Although I could have added expenditures, it would have been a PITA because my kids were making their own money decisions and not tracking with a lot of detail. My thinking is that by taking out the amount the school says will be required and not tracking each bagle is good enough. If you and your kid (both must be on-board, I think) are willing to track every transaction, then fine for you guys. I pulled the "budget" amount as defined by the school and was done (presuming exactly that much QHEE was spent). If the IRS asked, the kid and I would have to pull records and find out how close we came, but that never happened.
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Old 09-16-2020, 01:37 PM   #28
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I'd get the budget from the school for the type of student in question, withdraw the entire amount in one transaction (for the entire academic year, including spring semester) and move on with my life. You are not trying to "get away with anything". If the IRS asks, it will probably be a form letter. You'd send them whatever paperwork you have. And say you came up short of the total. So what. You refigure the tax. It's peanuts. The IRS isn't going to be interested in peanuts on a guy who's basically doing exactly what the law makers intended.
Actually, I think the lawmakers intended for people to basically reimburse themselves for money already spent. From what I understand you are only supposed to withdraw money for expenses already incurred in that calendar year. So for next spring 2021, I'd wait until at least January 2021, unless you can somehow pay the bill by the end of December. No point in doing something that you know won't hold up in an audit. I've been totaling up the money spent, including on a laptop and books, and making transfers from the 529 for the actual amounts spent, because what if the expected outlay changes? This way is a lot simpler.
Here is an article that was released yesterday about the confusion around matching with calendar year (so I thought I'd append to this oldish thread). It clearly lays out that there was something proposed by the treasury department that the IRS never did anything with: https://www.marottaonmoney.com/qa-ca...ears-expenses/ The bottom line is that the treasury department said "maybe you should let expenses from the previous year through March of the next year be treated as a unit". The IRS responded: crickets. So the idea of matching by year is up to the individual.
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Old 09-16-2020, 04:20 PM   #29
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I have a related question -

Our son attends a a full time 2 year MBA Program which is geared for working individuals, in which the classes are conducted on weekends.
He lives & works for the same university living in the same town,.

At present the 529 Plan Withdrawals have paid the required Tuition & fees,

Can I can withdraw & pay him the costs he incurs towards his cost of attendance (COA), i.e off Campus rent, board & incidental charges within the relevant estimates given by the university ?

Although the above expenses are paying in part for his living expenses when he works during the week days.

As the 529 withdrawals commonly pay for the off campus room & board for students who work part time while attending school, I think I could make a case for legitimate 529 withdrawals for a student who attends school full time & works full time.

What do you think ?
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Old 09-16-2020, 04:48 PM   #30
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I have a related question -

Our son attends a a full time 2 year MBA Program which is geared for working individuals, in which the classes are conducted on weekends.
He lives & works for the same university living in the same town,.

At present the 529 Plan Withdrawals have paid the required Tuition & fees,

Can I can withdraw & pay him the costs he incurs towards his cost of attendance (COA), i.e off Campus rent, board & incidental charges within the relevant estimates given by the university ?

Although the above expenses are paying in part for his living expenses when he works during the week days.

As the 529 withdrawals commonly pay for the off campus room & board for students who work part time while attending school, I think I could make a case for legitimate 529 withdrawals for a student who attends school full time & works full time.

What do you think ?
I certainly think you can, with one minor caveat: The IRS rules on QTP (529) withdrawals says you can withdraw for room and board incurred by the student up to the COA provided by the school. There is no mention of "incidentals"; I'm not sure what you mean by that term, and so those may or may not count as qualified educational expenses. (If it's electricity for the apartment, I'd be tempted to lump that in under the "room" part of "room and board". If it's pocket money for him to go to the movies, then I'd say no.)

Whether or not the student works is not a criteria the IRS uses.

As noted above, your son would have to be attending school at least half time per the university's definition in order for your 529 withdrawals for room and board to be qualified.

I think someone implied upthread that 529s were only for undergrad, but I don't think that's the case. Maybe something to double check by reading the relevant chapter in IRS Pub 970.
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Old 09-16-2020, 05:20 PM   #31
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Grad school counts. Qualified higher education expenses generally include things they "make you buy" as part of being in the program. So if they require a laptop and you buy a 3X cost gaming computer, that 2X extra would not be legit. It's easy to find the budget for on or off campus undergrad programs, and a bit harder IME, to find the same for grad programs, so if the web site isn't forthcoming, you might have to call.
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Old 09-16-2020, 05:47 PM   #32
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2020-21 Academic Year
Graduate Cost of Attendance
The costs below reflect estimated expenses. Your costs may vary.

In-state Graduate On Campus In-state Graduate Off Campus In-state Graduate Living with Parents In-state Graduate Summer 20 (A+B) Off Campus
*Tuition / Fees $12,740 $12,740 $12,740 $4,780
Books and Supplies 890 890 890 360
Computer/Cell Phone 1,170 1,170 1,170 340
Housing 7,510 9,030 — 2,710
Food 4,600 4,600 1,010 1,620
Transportation 1,120 1,120 1,120 375
Clothing Maintenance 860 860 860 300
Personal 530 530 530 130
Total Budget $29,420 $30,940 $18,320 $10,615

The University includes as above (Copy & Pasted above) - Transportation, Clothing Maintenance & Personal in addition to housing, Food, Tuition/Fees.

I meant & included some of the above in the incidentals.

Thanks
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Old 09-16-2020, 07:19 PM   #33
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Originally Posted by rkser View Post
2020-21 Academic Year
Graduate Cost of Attendance
The costs below reflect estimated expenses. Your costs may vary.

In-state Graduate On Campus In-state Graduate Off Campus In-state Graduate Living with Parents In-state Graduate Summer 20 (A+B) Off Campus
*Tuition / Fees $12,740 $12,740 $12,740 $4,780
Books and Supplies 890 890 890 360
Computer/Cell Phone 1,170 1,170 1,170 340
Housing 7,510 9,030 — 2,710
Food 4,600 4,600 1,010 1,620
Transportation 1,120 1,120 1,120 375
Clothing Maintenance 860 860 860 300
Personal 530 530 530 130
Total Budget $29,420 $30,940 $18,320 $10,615

The University includes as above (Copy & Pasted above) - Transportation, Clothing Maintenance & Personal in addition to housing, Food, Tuition/Fees.

I meant & included some of the above in the incidentals.

Thanks
I would not include transportation, clothing maintenance, or personal in any 529 withdrawals. From my understanding those are not qualified expenses.

What you have quoted seems to be a generic budget, which may be good enough. I always talked to the financial aid office and asked them for the specific budget for my son, which they were willing to give to me. Your son might also be able to find his specific COA for room and board in his student portal under the billing section.
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Old 09-18-2020, 04:04 PM   #34
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I would not include transportation, ...
File under "they don't make it easy"...the law that gets schools to give you the cost of attendance includes travel to and from campus, but the QHEE list excludes travel.https://lmgtfy.app/?q=qhee+includes+transportationhttps://lmgtfy.app/?q=qhee+includes+transportationhttps://lmgtfy.app/?q=qhee+includes+transportationhttps://lmgtfy.app/?q=qhee+includes+transportation
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Old 09-23-2020, 07:50 AM   #35
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Lots of long answers here.
The short one:
No she cannot pay you but she can pay forif she is taking at least 4.5 hrs)
Tuition, fees, books, computer
Rent, utilities, food
Basically THAT'S IT.

Had just researched this as DD graduated & COVID made her job offer precarious. She still has quite a chunk left of her 529 so I mentioned that if the job was PT for a while she could take grad classes & use the 529 to pay living expenses. Brilliant girl said she would rather work another PT job & freelance (graphic design) to try to pay the bills first.
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