<p>Hi
Is a 529 account withdrawal reported as a withdrawal by the beneficiary? We are about to withdraw some money to pay for some books and tuition and fees for our son. The 529 is in my husbands name but Son is beneficiary. I am pretty sure of the amounts for everything except books. Plus he has a refund coming for a summer class he dropped which we have not seen yet so I am not exactly sure on $ amounts. If we inadvertantly withdraw too much will it be reported on Son's taxes or ours? </p>
<p>Also he is not living on campus - if he struggles to make his rent during the school year we can use 529 funds to help him so long as we do not exceed the room and board on the COA - is that correct? That is my understanding from reading the 970 tax thing but gosh that is a confusing publication. This is our first time withdrawing funds so any advice is appreciated.</p>
<p>Withdrawals are reported for the owner. If you qualify for need-based financial aid, a withdrawal in excess of your EFC will cost you on a dollar for dollar basis.</p>
<p>OK I found the correct answer at the IRS web site. </p>
<p>
[quote]
For a qualified tuition program, list the designated beneficiary as the recipient only if the distribution is made directly to the designated beneficiary, or (b) to an eligible educational institution for the benefit of the designated beneficiary. Otherwise, list the account owner as the recipient of the distribution. Enter the SSN for the applicable recipient.
[/quote]
</p>
<p>We will have the distribution made either directly to the school or to our son so his SSN will be the one on the 1099.</p>
<p>Your husband is the account owner. Everything goes on his taxes. Withdrawals from 529 savings plans can be used penalty-free only to pay for qualified higher education expenses, such as tuition and fees; the cost of books, supplies, and other equipment; and in some situations the cost of room and board. (The cost of room and board may be a qualified higher education expense if the designated beneficiary is enrolled at least half time at an eligible educational institution.)
As account owner, you can decide when to withdraw funds from your 529 plan and how much to take out--and there are ways to time your withdrawals for maximum advantage. It's important to coordinate your withdrawals with the Hope credit, the Lifetime Learning credit, and other tax credits you might qualify for. That's because the tuition that's used to generate a credit may reduce your available pool of qualified education expenses.</p>
<p>I'm not totally clear on all things 529......</p>
<p>My brother is the owner of a 529 naming my daughter as beneficiary. It's not very much money, but it was very nice of him to think of her. (We don't have enough money to do anything other than stay afloat.)</p>
<p>My daughter is going to a public univ. in the fall of '08, and so we'll be filing a FAFSA for her, but a CSS Profile won't be required. The FAFSA doesn't require reporting that small 529 account because it's my brother's asset, not ours or hers.</p>
<p>When we get that first bill from the univ. next year, how does the distribution work? If he withdraws the money that goes to her directly than that gets reported as income for her? If he has it sent directly to the school will it change her finacial aid picture? I read in a FinAid article that the best thing to do (this is for grandparents or aunts and uncles, etc, that have a 529 for a grandchild/neice/nephew) might be for the student to go ahead and take out a loan for the needed amount, and for the account owner to withdraw each year the amount of qualified expenses the loan will cover, and then just hang onto that money and give it to the student when they graduate to pay back the loans.</p>
<p>She could do that, but why are they advising this? What is the pitfall with the account owner just paying the school? If that's a problem couldn't we (her parents) just pay her expenses with a credit card or with a home equity loan, and then my brother could take that amount out of his account paid to himself, and then simply give us the cash as a gift to pay the borrowed amount?</p>
<p>I don't understand how all this works exactly. What is the best way to handle the dispersements so the money my brother has in that 529 can go as far as it can in helping her pay for college?</p>
<p>
[quote]
We will have the distribution made either directly to the school or to our son so his SSN will be the one on the 1099.
[/quote]
</p>
<p>Hmm - our 529 account does not give us the option of having it paid direct to him. Wa can have it paid direct to the school - but some of it is for summer classes we already paid for. It is all for qualified expenses (not covered by any sort of financial aid for him) so should not be a problem. </p>
<p>cleslie - from reading the IRS 970 we have to figure out if any of it is for unqualified expenses and only report that portion for taxes right? If it is all for qualified expenses it does not even appear on our tax return?</p>
<p>SoOreMom - I am confused myself as you can probably tell. I do not understand the idea of borrowing the money then using the 529 account money to pay back the loan.</p>
<p>Everything I read in the IRS 970 publication refers to the beneficiary when it comes to taxes.
for instance:
[quote]
Are Distributions Taxable</p>
<p>The part of a distribution representing the amount paid or contributed to a QTP does not have to be included in income. This is a return of the investment in the plan.</p>
<p>The designated beneficiary generally does not have to include in income any earnings distributed from a QTP if the total distribution is less than or equal to adjusted qualified education expenses (defined under Figuring the Taxable Portion of a Distribution, later).
[/quote]
So I am getting more confused between what the IRS970 says and the information being given on CC.</p>
<p>Thanks for the link to the IRS material, swimcatsmom. I will read it... and hope I can make heads or tails of it. eek.</p>
<p>There are a few articles available online about 529s owned by extended family, but not much. The Profile requires they be declared, but not the FAFSA. It's usually grandparents that this situation we have applies to, but in our case it's an uncle. His finance guy seems to be oddly ill-informed about all this. I'm the one that had to tell him about the Profile reporting requirement vs. FAFSA's. I'm not counting on him to be of much help, but I want to find a way to make the money in it stretch as far as it can, without crossing and legal or ethical lines.</p>
<p>
[quote]
If you qualify for need-based financial aid, a withdrawal in excess of your EFC will cost you on a dollar for dollar basis
[/quote]
This is not true for regular 529 savings accounts though possibly true for prepaid tuition accounts. Ours is not a prepaid tuition account.</p>
<p>SoOreMom - I think 'finance guys' who are not specialist in college financial aid matters are pretty clueless about it. There are often threads about people being given advice like putting money into trust funds to avoid it being counted for financial aid then realising too late that the information is incorrect. finaid.org is by far the most useful site I have found for accurate up to date information - between that and CC I have learned a lot.</p>
<p>My swim cat swam for years then went to a Math/Science school for junior/senior year that had no sports or ECs. I used to really enjoy the involvement in swimming/band etc. Miss it.</p>
<p>I think you're right about these finance guys who don't know much about college financing. I was rather surprised that I knew more about it after reading around the FinAid site than he did.</p>
<p>My swim cat is trying to find the perfect school to swim at when he goes to college in the fall of '08. He's looking only at D3 schools, but there is such a vast range of speed/power/size of the teams. And some of the better ones are at schools he's less interested in, and some of the less strong teams are at schools he loves.</p>
<p>He'll be deciding mostly by school-first/team-second, but trying to find that sweet spot in the middle is a very subjective process. LOL.</p>
<p>I hear that about "finance guys"!!! We used to work for a company who used the "hook" of college financial aid, and then used the opportunity to sell insurance, annuities, refi homes...whatever would yield a commission, whether the family needed it or not. It was very distressing. And very sad that at the point of desperation to send their child to college, parents will do just about anything (except those who think someone else should pay for their child college education). :)</p>
<p>lawrene - there was a post a few weeks back by a Dad who was beeing 'sold' a massively expensive insurance plan that involved tying up well over $100,000 of savings plus refinancing his home for more than that amount to finance the insurance all to help reduce his EFC. He though it seemed like a good idea(!) and asked for opinions and got a very resounding and unanimous 'don't do it!' on CC. I'm all for maximising the aid we are eligible for but can't see the logic of tying up my own money to where it is unavailable even to me if I need it (without penalties). Even a guy who sells that type of insurance came on and was horrified by what this guy was thinking of doing and told him flat out that the only one making money in the scenario was the guy geting the commission. The Dad was surprised that not one person out of dozens though it was a good idea - but decided against the plan. He would have been tying up way more money than he was going to save anyway.</p>