Need Input from those actually using a 529 plan

[Danestress]

For various reasons, we have an overfunded 529 plan. We will not be taking distributions that are not qualified, but we have been advised by our financial planner to get reimbursed for every possible thing.

 

So tuition, room, board, easy. And I think I understand the basics of how that works if my child eventually lives off campus.

 

Required texts. Good. Computer, good.

 

Can we include a book bag? Carrying case for computer? Supplies like notebooks, paper etc? A printer?

 

If you needed to use what you had, any tips?

[Lori D.]

For various reasons, we have an overfunded 529 plan. We will not be taking distributions that are not qualified, but we have been advised by our financial planner to get reimbursed for every possible thing.

 

So tuition, room, board, easy. And I think I understand the basics of how that works if my child eventually lives off campus.

 

Required texts. Good. Computer, good.

 

Can we include a book bag? Carrying case for computer? Supplies like notebooks, paper etc? A printer?

 

If you needed to use what you had, any tips?

 

Be sure to look at the IRS guidelines: IRS Publication 970

- p. 48 = qualified educational expenses

- p. 59-62 = info on 529 plans (what is taxable, doing a roll-over, changing educational beneficiary, etc.)

 

See these two helpful articles on making withdrawals from a 529 for college expenses:

"4 Common Questions About Spending 529 College Savings Funds"

"Avoid These 529 Withdrawal Traps".

 

A computer and peripheral equipment, software, or internet access only allowed if the student is the primary user. Book bag, computer case, supplies, and a printer fall might fall under personal items/expenses or optional equipment and thus not be deductible… Not seeing specifics on those items in the publication linked above… One thing that might make a difference (negatively): Many colleges have all online submission of papers, so no more need of printers in many places -- you may want to check on that with your student's college. So if a printer is not needed for school purposes, it would likely be considered a personal item.

 

One thing: you WILL be able to do is take a second draw in this same year to pay for expenses for the spring semester -- tuition, room & board, books & supplies in this year's draw from the 529, since the spring 2017 semester costs will be due this Nov/Dec.

 

Also, according to those articles: if your student earned a scholarship so now your 529 is over-funded, you can withdraw the amount of scholarship and put that straight into your bank account and only have to pay taxes on HALF of that amount. So if you have a hugely over-funded 529, at least you can get back some of the $$ without having to pay taxes on it. However, this must be done each year, and it only allows you to remove the amount of the scholarship, and you still have to pay taxes on half of that amount. If you wait until your student graduates from college, you will have to pay taxes on the full amount that is left in the 529 when you withdraw it.

Edited May 10, 2016 by Lori D.

[Danestress]

Thanks for the input!

 

I think the computer expenses regulations have changed since those were published. The Path Act passed in December and if I understand it, computers are covered now without showing they are required (but they are anyway for my child, to a minimal standard).

Edited May 10, 2016 by Danestress

[Crimson Wife]

I would leave the extra in for grad school and/or future transfer to grandchildren. I'm using a 529 that my late grandma set up for me years ago to pay for my 2nd bachelor's plus (hopefully) some of grad school. If for some reason I don't wind up depleting it (unlikely but possible if I were to win a full scholarship to grad school), any leftover money can be transferred to one of my kids.