Well it is finally college time for D in Fall 2017. Unfortunately, my parents who have funded a 529 for nearly 18 years are a little older, slower and not as sharp as they used to be. Does anyone care to share any strategies to help the grandparents disburse the funds?
The easiest thing for me as a parents (although it might not pass IRS muster) would be to pay everything myself and then have all disbursements from the 529 to me.
What would be a best practice?
Who’s the account holder? The grandparents? (you could be the account holder if you set it up in the first place, but then they contributed). I’m no expert at this, but my understanding is that the money from a 529 can be disbursed to one of three entities: the account holder, the account beneficiary (i.e., the student), or the college. If it’s disbursed to the account holder, then the holder will get an IRS form 1099 and, in the event of an audit, would need to be able to prove that the amount indicated on that form was spent on qualifying educations expenses. This sounds like a potential hassle that you might prefer to avoid for the grandparents, in which case the easier route would be for them to have the 529 distribute the funds directly to the school (in which case the 1099 goes to the beneficiary, not the holder of the account). You might check with the institution that has the 529 fund for your child, it might be possible for the grandparents to add your name as someone allowed to authorize disbursements, in which case then you could simply authorize the fund to disburse directly to the college.
What has worked for me was to have the grandparents disperse to my son (via check). I deposited it in his linked account to mine, moved it to my account and paid it myself online to the college. I do like doing the “paying” myself so that I can keep track. I have also had the grandparent send a check to the school, and then I just have to follow up with the online portal to make sure it arrived and was applied. This can be slightly more complicated as you have to get the check directed to exactly the right department, and with the correct info to connect it to your kid (student ID or whatever else they want).
Generally you have a month or so between when you get the bill and it needs to be paid, which should be enough to get the funds in the right place at the right time. Just plan ahead and give “heads up” to the grandparents if they are going to be on vacation or otherwise busy when the bill comes due.
Agree w above posters -
We always call the 529 fund and have them send the money directly to the school. For the first time you do this you will need to fax them a form (that they have on their website) asking for school address to send check etc and for account holders signature … but after that first time of faxing the form to them, then the student or the account holder can request the funds sent directly just by a phone call…
So once you have the grandparents sign the form, then the student can call and request the money be sent to the school.
Send the money directly to the school from the 529, which you typically can do through the 529 online system. That way you have a clean and simple audit trail through the 529 online account system.
You could sit next to the gramps and walk them through the set up on the computer. Even better (assuming they are comfortable you aren’t going to abscond to Venezuela) have them give you the online credentials and you can do it for them.
Once you have all of the school info entered into the system for the first payment, paying the second and later bills is no harder than doing online bill pay for a monthly utility bill.
Depends on the system the 529 is handled through, but my father made me an authorized user on my kids’ accounts, and then I was able to go in and set up online access and handle everything that way – we can make direct payments to the school from the account, or I can direct deposit reimbursement from the account to my own checking when it’s for things like books instead of housing. Dad still gets paper statements, but he doesn’t have to be involved in the minutiae at all.
I think he still enjoys the twice-yearly, post-semester-payments phone call from me about how, “Have we mentioned lately how awesome you are for doing this?” though. 