529 Plan withdrawals and grad school expenses

Paying for College
1

DS is graduating this spring with a bachelor’s degree in 3 years instead of 4. There will be about 25K left over in his 529. His original plan was to continue to medical school, so I was not concerned about the left over funds. Now he wants to take a gap year and then go on to graduate school for his PhD. According to him not only PhD students do not pay, but they get paid a stipend from the university, and they may have to work for it. (Of course this is not the reason why he changed his mind:)

My question is how do we make 529 withdrawals in this case? Can we withdraw money to cover his rent and food if no bills are issued by the school? I have an option of transferring his balance to his younger brother’s 529. Comments?

2

Why don’t you put a pin in this discussion until he actually applies to grad school? At the moment- you have no bills due-- but also he hasn’t been accepted anywhere. What if he comes back from his gap year and decides he’s getting a master’s in public health (usually not funded) or an MBA (not funded, except by employers) or a joint MD/PhD which will definitely require some dough?

3

I am bringing it up now because DS2 is applying to colleges. This amount can make a difference in his decisions. I don’t expect him to finish in 3 years or get significant merit. It may not seem fair to DS1 though, my kids always interpret fair as equal. The account is in parents name but I feel the money is really his since he has done so well and we pledged to pay for undergrad at the state school level for both.

4

If your son lives off campus while enrolled in grad school full time, you can use the 529 account to pay room and board expenses no greater than the allowance for room and board included in the school’s cost of attendance for federal financial aid calculations. You’ll be able to find out the precise amounts at that time, but yes, you can use the 529 for some or all of the apartment expenses.

5

If you feel it is important to keep the two children ‘even’ as they define it, you can always save the money for a grandchild of S1. If he insists on it being even, then it doesn’t matter that you could transfer the money to S2. You as a family have agreed that it is his money to control and S2 should make his college choice based on the money in his account only.

I disagree with your son’s views on what is fair. You said you’d fund his undergrad education and you did. My D2 would agree with your son, that she should get exactly the same as I’m paying for her sister even though her COA is fully covered by scholarships. I know she’d like me to write her a check for the amount I’m paying the other university, but that’s not happening. In my view, they are each getting an education and they have food and clothing and transportation. (D1 has to take some student loans too). D2 has no plans for grad school at all, but I know she’d want to keep the money in a 529 forever (our money isn’t in a 529) rather than give it to her sister because she’d think that’s what’s fair. Too bad for her that I don’t agree.

6

Thank you! I will keep the money in his account for now. It is good to know he can use it for grad school somehow.

Treating kids equally is another thread I will start one day. I saw in a relative family how it brings animosity when the parents help the “needy” child (who was on drugs while the other one was driving a taxi through medical school). Not doing it to my kids.

7

Treating kids equally does not mean treating them both fairly. Your older son had the benefit of lower total cost of attendance, in part because he was part of a family of 4 for all 4 years of his undergrad. Your younger child will be considered part of a family of 3, so just about all schools will expect that his need is less if the family income remains the same…

Even if both kids got identical grades, in identical courses through high school and had identical test scores, and they both went to the exact same college, it can easily cost the second child $10,000 more per year. For many families, the cost of college is so significant, they simply don’t have an extra $40K to give to the older child because he happened to be born earlier.

The only “fair” way to go about this, in my opinion, is to wait until the last year of the youngest’s college, so you know what the total cost to the family will be, before attempting to “even things out”.

If you are fortunate enough to help pay for your family’s college expenses without them needing to take loans ,bravo, but do your best to meet your children’s needs first

8

Actually treating them fairly doesn’t mean treating them equally!

9

@3puppies,

I am not following how the older son had the lower total cost of attendance other than merit. Our EFC is greater than in-state COA, so we are full pay minus his scholarship.

Why is my younger son considered to be part of a family of 3? Every NPC says to include siblings into the family count. I thought that regardless of where my older son lives, if he is not married and we support him financially, he is still part of the family for the FAFSA. Another scenario: he lives at home while in grad school - is he not part of the family? He is 20 y.o.

@thumper1,

This is just how I feel: unless a child is chronically ill or disabled, or has other serious adverse issues, they should be treated equally. Imagine a family where a hardworking and less gifted child worked his butt off through HS and a difficult major in college, while a bright and lazy sibling did not make an effort. How would it be fair to treat them without causing trouble in their relationship down the road? Therefore, we said we will cover 4 years each of in-state school, anything extra on your own. Yesterday I was thinking of transferring 529 funds, but putting it on paper helped me see the light.

10

How you are treating two children fairly when they have different goals or abilities is that you desired to give each a college education and you ‘agreed’ (maybe it was decreed by the parents and the children had no say) that the amount you’d pay is instate tuition/COA. That’s what I did, I said I could pay about $15k per year per child and that was the budget each dealt with. One, though a series of fortunate events, has her COA covered even though her school costs $55k per year. The other, through taking some loans, comes in at or under budget even though her OOS school has a COA of $27k.

I do not give them both $15k per year. I pay UP TO that. Some people do give their kids the money they don’t spend on education, but I don’t. At the end of the day, they’ll both have an education. Being lazy or on drugs is not part of the equation as I’d stop paying in a heartbeat, and they know it.

11

@LoveMyPuppies - forgive me, our family situation is not as fortunate as yours - each of my pups were/will only be able to afford to attend schools that meet 100% of need. For many families, need-based aid can be as generous if not more generous than merit aid. Comparatively, very very few families would be able to be full-pay less merit for multiple kids for 4 years of undergrad.

But either way, the age difference between the children matters.

Suppose one is 4 years younger than the older brother, and will be starting freshman while the other takes a year off before pursuing 3 years of grad school. If the older is still a dependent for all four year, then the younger’s need based financial aid for all 4 years will be based on a family size of 4. As was the older child’s undergrad. If the older child goes straight to the workforce after UG, then the younger’s FA is based on a family of 3.

But if there are 6 years between the siblings, then the older will be no longer a dependent for all 4 years of the younger’s UG time - so any financial aid for the younger’s junior and senior years is based on a family size of 3. And some schools base financial aid calculations on the number of family members who have not yet earned a degree. Even if they are still dependent, the reasoning is that UG is more of a drain on the family expenses than grad school might be. Some schools are not completely clear how much aid was merit and how much is need based - and when you get down to it, it doesn’t matter, as it usually costs a lot of dough. Bravo to the parents that are able to help.

If the parents have to pay $15K for 4 years for the oldest, and $15K for first 2 years for the younger, then $20K for the final 2 years, my math shows it costs the parents $10K more for the younger child. If the older child did not have to take loans, but the younger child does, is that something “fair” that the parents could / should address?

It gets much more complicated when there are even more siblings to add to the mix. What the last child gets in financial aid is almost always less than what the oldest qualified for, and the COA is usually more each year - but is that her fault for being born a few years later, or for there being no more kids following her?

Life is not always fair, and there are a lot of things that will come up along the way to throw a monkey wrench into the equation. Most parents will do their best to provide for their children’s education based on the situation that develops.
Parents who try to make things “equal” based on money alone might not be considering the true needs differences that their different children have.

@twoinanddone - I appreciate your example, and I very much like the idea of explaining to the children what the budget is, especially what you think it will be for all four years. But if you set a budget of $15K per year, and the first meets it, and the second child met it for the first 2 years, what would you have done if the second child’s third and fourth year’s net cost after loans came in 10% above your $15K figure? Would you have then told your younger child to transfer to a less costly school? Would it depend on how much the instate tuition/COA has also increased during that same time period? What would have happened if your family income also increased by 10% during this timeframe? Suppose you came into an inheritance during this period? But I am 100% in agreement that being lazy or on drugs should not be part of the equation - and that would be the time to stop all payments completely.

12

My kids happen to be the same age (or really the same grade in school) so we weren’t dealing with different economies because of years separating them. D1 took a semester off so she’s now a semester behind for graduation. They are entirely different kids and want different things from school. My budget was $15k each, and I couldn’t even promise that for 4 years, just that that was what I had at the time and what I could contribute. It was about what instate tuition and r&b cost at that time, and there haven’t been increases at the state school (while my daughter at a private school’s tuition has increase $8k since she applied, about $2k/yr). Yes, there was (and is) a possibility that they’d have to take some time away from school and work, take a co-op, get more scholarships or financial aid (and they have).

There is an 11 year spread between my older sister and youngest brother. My parents’ incomes were very different from #1 to #6, sometimes up, sometimes down. We all dealt with the financial situation as it was at the time we were at school, and they lived in 4 different states as we graduated from high school too, so different instate opportunities. The younger ones didn’t necessarily get more, and their schools didn’t necessarily cost more.