529 and taxes

Paying for College
1

<p>We have a 529 that we will be using to pay some of daughters room and board. Grandparents are also paying a small amount. We are going to pay tuition out of our checking account in order to qualify for AOC. Do we have to mark those checks in a certain way to for AOC purposes? Or will just having the statements that show we paid total be enough as long as what was paid with non 529 funds is at least the amount if tuition??</p>

2

<p>Well, since I don’t pay by check, but with electronic bank transfer from a checking account, I have never marked anything. I just keep good records of the invoice and how much was withdrawn from the 529 accounts.</p>

3

<p>The statements are fine. I never did anything special to mark the checks, but kept the invoices (I did write on the invoices which checks #s I paid them with, but no one ever asks…). :)</p>

4

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<p>The amount of qualified education expenses required to get the max AOC($2500) is $4000. You can use the 529 distribution for the rest of tuition, fees, books, room and board.</p>

<p>Keep the itemized college bills and any paper work from the 529 distribution. Your student will also get a 1099Q next January with the distribution info.</p>

5

<p>What about what her grandparents pay from the Coverdale that they set up for her? It won’t be a large amount but they will be paying some. I’m assuming that can be applied to room and board?</p>

6

<p>Yes, Coverdell distributions can be used tax free to pay for R&B if the student is attending at least 1/2 time. IRS Pub 970 has all the info about college tax matters:</p>

<p><a href=“http://www.irs.gov/pub/irs-pdf/p970.pdf[/url]”>http://www.irs.gov/pub/irs-pdf/p970.pdf&lt;/a&gt;&lt;/p&gt;

<p>Be aware that costs paid by grandparents must be reported on the subsequent year’s FAFSA as untaxed income to the student. I’m pretty sure profile schools and schools with their own finaid forms will ask for this info too.</p>

7

<p>She doesn’t get any financial aid other than unsubsidized loans so not worried about that. Thanks for the link!</p>

8

<p>Also, only the tax free interest on the 529 plan cannot be part of the 4K required to get the maximum benefit from the AOC. The principal in the account is after tax money.</p>

9

<p>I don’t think the interest is very much as we have only had the 529 account for a few years.</p>