This is exactly what I was looking for. Thanks!
Yes, for a student NOT living in Univ housing, the reimbursement of the INCURRED expenses must not exceed the published allowance used for financial aid purposes.
I havenât found any IRS ruling that changed that concept because of Covid remote learning (but I can be educated to the contrary). Incurred expenses of living at home do qualify. Of course, if you charge them rent, youâll have to recognize rental income on your return.
The only leniency that I know of, was the extended deadlines for returning tuition refunds.
Naturally, you will not âneedâ to document that they ACTUALLY incurred any expenses, UNLESS/until there is an audit. I personally prefer the peace of mind that I do have all documentation needed for that possibility, however unlikely. (Iâve dealt with too many audits in our business by all kind of tax authorities at all levels, incl from other states)
Credit card statements will only show that you paid at a restaurant, or at a Walmart, but it doesnât show how many meals for how many people, or which items purchased were actually âboardâ, not clothing, electronics etc.
For an adult (no matter how young), itâs not a big imposition to get used to keeping receipts - soon, in their professional lives, theyâll have to do that all the time. Might as well make THAT part of their financial education and have them get in the habit of âbacking up with recordsâ.
PS: I made a point to involve my daughter in investment choices, discussed investment timing, market cycles, when to use what fund classes, etc. I may not be around forever - so this is the perfect opportunity to treat this as a âhands-onâ lab.
I have a similar question because my senior undergrad son will likely attend grad school after a gap year. He received a scholarship for undergrad and so can withdraw that amount for the calendar year from the 529 and pay taxes on the gains but no penalty. But weâd rather leave the money in the 529 for now. If he receives a stipend or fellowship for grad school (bc like the earlier poster his program would be fully funded), then is the same âruleâ applicable re withdrawal without penalty and with only gains taxes? If not, then I think we may go ahead withdraw the amount of the scholarship money this year (for undergrad) and invest elsewhere. Do not want to transfer to another beneficiary.
Yes, and I would suggest you definitely donât withdraw until you are sure there wonât be any kiddie tax implications (much easier in grad school than as an undergrad) in order to use his (presumably lower) tax rate.
Ah! Okay. So yes we can withdraw it for grad school scholarship. But caution bc kiddie tax if doing it now. Thank you!
I need to research kiddie tax bc I donât even know what that involves. The taxable amount each year for the undergrad gains would be less than the standard deduction. Or weâd make it so with the withdrawal amount. I wish I had an accountant in the family!
Some accountants are surprisingly dense when it comes to ANY financial issues re: universities, 529, etc. I know people in real life who have gotten absolutely terrible advice from their CPA or financial planner (as in- THE WRONG ANSWER, easily verified by googling the appropriate IRS form). So donât assume youâd be better off with a professional!
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