So, with the issues with refunds and 529s, I am realizing that my record keeping for 529 qualified expenses definitely needs some improvement. Anyone care to share (in general of course) they system that they use?
(My “system” consists of knowing that our tuition statements are all online, and we save email receipts for books and the rare paper receipt for laptop purchase. I also put comments in my withdrawal checks as to what it is for “tuition; rent/grocery.” Supplies are put on a credit card that we don’t use for much else so I rely on the online transaction history for that. That’s it!)
Speaking of grocery, for off campus apartment dwellers, do I really need to save all grocery receipts?
How common are audits triggered by 529 and is it really a 7 year limit? Meaning I would need to be able to access any online transactions and save paper receipts for 7 years after my child graduates?
D19 has a credit card that she uses for all day to day qualified expenses (well, sometimes she uses it for more but I go through the statement and score out the few that don’t count). Obviously big ticket items like computer, and the actual college bills, are separate. But for example I’d just use say a Trader Joe amount on the c/c bill as “groceries”, not ask her to keep the actual receipt.
My tax preparer said to group by basic expenses and keep the c/c bills “in case”, but it doesn’t sound like they generally see audits from the IRS for this.
Thank you both. Very helpful. I did realize that D is always putting her groceries on “the card” or her debit card, and it wouldn’t be that hard to sort out those transactions by store.
Maybe my system isn’t so lacking over all! I would just have to do online digging in the (hopefully rare) event of an audit.
This was a topic of long discussion on some other financial forums I participate in that have a lot of high net-worth individuals.
Consensus was that as long as your annual 529 withdrawals do not exceed the published cost of attendance for the school in question (minus any grants and loans) then you are probably fine. Every school puts this on their web page.
Myself, I only use 529 funds for the direct tuition and fee payments to the university so I don’t worry about it. Every 529 withdrawal is a direct transfer from Vanguard to the university for which I have an invoice. But then we are in the more normal position of not having enough 529 funds rather than too much and looking for ways to spend it down.
Where the IRS will have questions is if your college has a published cost of attendance of say $50,000 but you ran up $75,000 of 529 withdrawals. That would be an obvious red flag for an auditor. And you had better have reasons, like an expensive study abroad experience or something like that.