I disagree since the 1098-T is reported to the government.
Anyway no point in pushing on. The rhetoric is pointless.
The 1098-T is useless for determining what 529 qualified expenses were billed to or incurred by the student. It doesn’t report room and board or books and other class supplies, for example.
Yes, every law/rule can be broken without consequence to the actor, as long as not caught. That’s a very cavalier attitude. I very much suggest that thriving to follow laws/rules is the correct way in all areas of life.
The 529 can be an enormous “compounding” benefit by allowing huge amounts to accrue tax free, as long as used as intended. Why, on top of all those legal benefits, the average, otherwise reputable parent should risk filing fraudulent tax returns (by deducting imaginary computer expenses) is beyond me.
In an extreme case, this is not just a “parking ticket”. Because, let’s be real, once someone starts down that slope, it could become just the tip of an iceberg over the years.
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I was commenting to your auditor would want to see a tuition bill. They have those expenses on the 1098. Again this is devolving no where. Let’s stop responding. Please
Debating on the likelihood of getting caught versus the potential ramifications if one does are two different things. My approach was to have every dollar defensible with real receipts.
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Again you don’t comment where I say people shouldn’t do this. Where I agreed that overstating the room and board by using the colleges figure was incorrect.
I said people do what I described because it’s on the honor system.
Last night I took an HSA withdrawal. 12 receipts. Matched up exactly. But if I would have doubled them no one would know.
To your example, I specifically said I do not endorse it. I do not condone it. It’s in the same post.
You all continue to take an example I used that I said people likely do and you forget the rest where I say it’s not endorsed or condoned by me.
This isn’t politics. There’s no need to make fake statements out of incomplete thoughts and that’s what you are all doing.
Right, and an auditor would have to ask to see the tuition bill (not just look at a 1098-T that the IRS already has), just like an auditor would have to ask to see a receipt for a computer that was purchased with 529 dollars.
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I’m good with this where possible. Food is not always possible.
This is where I’m lucky (not) - that the schools r&b estimate is lower than my actual. In my daughters case for next year rent alone.
Again as I stated several times in original posts, I am claiming what likely happens. I outright said it’s not right.
Most people are not tied in like CC posters.
I bet my life most people, including accountants, don’t take out any college tax credits that are supposed to be excluded.
I wish I knew more up front. I learned a hard lesson…saved too much.
If I take scholarship withdrawals I overpaid bcuz the expense ratios of the funds are high. Or do I save for grad school or grandkids.
If I had to do it again I’d have done much less bcuz - if it’s likely you’ll get big merit aid- you don’t need so much.
Anyway time to move on
I agree. Don’t cheat.
I simply said many may and even those not intending are likely off in what they claim.
It’s no different than you give paperwork for a tax return to ten accountants. And they come up with ten amounts owed or refunded. There are studies that show this each year.
Again we killed this one.
Appreciate if people read an entire message and not pull out select words.
Why ? The 1098 shows payments received for qualified tuition and related expenses. This is box 1. If there’s no housing its easy. If there is, it’s still easy to back it out. So if your # is 50k and let’s say it’s tuition only that’s $50k
Box 5 is scholarships. If its 20k
Wouldn’t that not mean you could withdraw $30k
50k tuition minus 20k?
I’m just calculating tuition here. Not books. Room etc
So why would they need a bill
All the fees such as engineering college fee, homors infrastructure fee, etc are on the 1098 listed individually
Been doing this for 4 years now - and now there’s still money for years of graduate school (what can I say: I started the account on day 1 and had favorable market conditions long term).
To me, more work goes into the annual FAFSA and CSS Profiles than in proper 529 record keeping.
I have a spreadsheet I copy each year. It shows each withdrawal and what it was used for. Then I attach…
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the Year-End 529 statement that reconciles against those amounts.
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Tuition is covered on invoices, so I print those each year (in the first year, it even covered housing and mandatory meal plan) and of course those are paid directly from the plan each semester.
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For housing, I access the college web site each academic year, and print the page showing their housing options and cost. Then I print a copy of the lease (I have yet to find a Manhattan landlord willing to let my daughter live in their apartment without first having signed one!?). Divide by number of room mates; then I pay my daughter the bulk amount for each semester. (No sense bothering with tracking utilities extra in her case, as NYC rent uses up any allowance).
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For food, I access the college web site each academic year, and print the page showing their available meal plans. My daughter picks whatever minimal plan suits her for on-campus lunch, and the difference to the “standard” plan is her semester budget for off-campus food shopping/dining.
By sophomore year she was an adult. If she can be trusted with a credit card, she better be able to take that supermarket/restaurant/coffee-shop (new this year: liquor store) receipt and shove it in her bag or pocket. It became second nature to her (given that there is a financial incentive) - and occasionally they end up on my desk.
Takes 3 minutes (3 or 4 times a year) to tabulate them up, add the total to the spreadsheet, issue the reimbursement to her, and staple them to the withdrawal confirmation. -
For books and other mandated course materials, same procedure:
tally up the receipts she kept, add the total to the spreadsheet, issue the reimbursement to her, and staple them to the withdrawal confirmation.
Result: I sleep well, and my daughter get hands-on lesson on expense-tracking, and how, someday soon, she’ll have to document T&E expenses to her corporate employer for reimbursement!
Side-effect: I’m careful that all payments that don’t go directly to college, are “defined” as going to the BENEIFICIARY (her), not the account owner (me). So each January, she’s been sitting down with me to help with her (very simple) tax return, which essentially becomes the “Cover Page” for all that 529 documentation for that year, and gets filed in her 7-year bin.
Yes - all a bit “nerdy”, but adult life has to start at some point, right?
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My DS will be a freshman next year so am now trying to learn about using the 529, and not just putting money in it. This thread is helpful, I continue to learn so much on this site.
Thank you all.
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Non-taxed merit aid can be matched dollar for dollar and simply given back to yourself. Just make sure you have documentation.
At the end of the day, if you still have too much, and don’t want to fund other family members, pull it, and pay the taxes and penalties. It’s only the earnings that are taxed and penalized. Your original contributions can be pulled right back out penalty free.
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The 1098-T was designed to help taxpayers reconcile expenses and claim education tax credits. As I’m sure you know, the definition of qualified education expenses differs considerably between the education tax credits and 529s. Heck, the definitions don’t even match up between the two education tax credits (American Opportunity Credit and Lifetime Learning Credit). So an auditor who only looks at a 1098-T to evaluate 529 qualified expenses is only seeing part of the picture. Finally, colleges used to have the choice of reporting on the 1098-T either the expenses billed in the tax year for qualified tuition and related expenses (which never included room and board) or the payments received in the tax year for qualified tuition and related expenses. That choice no longer exists. All 1098-T forms now issued must report the payments received in the tax year for qualified tuition and related expenses. I hope you are now seeing why any auditor who relies on a 1098-T to present an accurate picture of qualified expenses for 529 purposes would be acting in a grossly incompetent manner.
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Yes I get it. I’m just bummed. If I had it in am s&p the expense ratio would be less.
I don’t believe there’s a 10% penalty.
I have to act quickly. I’ve let years pass.
I know. Look at the positive. My kids get lots of scholarships.
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Okay, so a new version of the question since I’ve been googling and reading all these replies. Son was required to sign a 12-month lease for his apartment. Since the total 12 month cost is still significantly under campus housing COA, can I include the summer months when he was unenrolled between academic semesters?
And I will say that I can only find language that says the total off campus rent cannot exceed the COA. Nothing really says that off campus housing qualified expenses are capped at the lesser (lease/invoiced) amount. Am I just missing that? Here’s the language in Pub 970:
"Expenses for room and board must be incurred by students who are enrolled at least half-time (defined later).The expense for room and board qualifies only to the extent that it isn’t more than the greater of the following two amounts.
a. The allowance for room and board, as determined by the school, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student.
b. The actual amount charged if the student is residing in housing owned or operated by the school."
The tax code seems to say that the only time the qualified expense would be different than the COA is if the housing is provided by the eligible educational institution at a different rate. That doesn’t seem to include off campus housing:
"#### Room and board included for students who are at least half-time
(i) In general
In the case of an individual who is an eligible student (as defined in section 25A(b)(3)) for any academic period, such term shall also include reasonable costs for such period (as determined under the qualified tuition program) incurred by the designated beneficiary for room and board while attending such institution. For purposes of subsection (b)(6), a designated beneficiary shall be treated as meeting the requirements of this clause.
(ii) Limitation
The amount treated as qualified higher education expenses by reason of clause (i) shall not exceed-
(I) the allowance (applicable to the student) for room and board included in the cost of attendance (as defined in section 472 of the Higher Education Act of 1965 (20 U.S.C. 1087ll), as in effect on the date of the enactment of the Economic Growth and Tax Relief Reconciliation Act of 2001) as determined by the eligible educational institution for such period, or
(II) if greater, the actual invoice amount the student residing in housing owned or operated by the eligible educational institution is charged by such institution for room and board costs for such period."
I’m pushing this a little for both my own rhetorical curiosity and bc I would like to vacate as much of the 529 as possible without moving the funds to another beneficiary.
We submitted the rent he paid. If it was sublet during the summer, we didn’t submit that. If he covered the whole year, we did, even if he wasn’t in class. If he sublet from someone else, we submitted that.
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So how are you taking soa And toilet paper, etc out of your food receipts?
I had two children who each went to school for 5 tax years, so 10 1098-T forms received. Not one was correct. Scholarships and grants for January bills were on the prior year’s bill, no inclusion for books or required supplies, some scholarships not on the 1098-T (those paid directly to student). Also, the 1098-Ts were issued to my girls, under their SSNs and that information was going on my tax returns as I was claiming the AOTC. One daughter had to pay taxes on the excess scholarships. That amount never agreed with the 1098T.
So the IRS does not have all the information. You are not going to get a notice from the IRS that you forgot to include the 1098T info on your (or student’s) taxes like you would if you didn’t include interest from a bank account on a 1099 or if you left off a W2.
I kept all my own records in case of an audit. I have the print outs of the charges and credits the college posted (and OMG one school made a huge mess of that EVERY.SINGLE.SEMESTER often posting a charge and then crediting it back, then posting it again, then posting which scholarship or grant paid for it, etc. - I never figured out why they did that semester after semester).
I was responsible for putting together the 1098-T’s in my last job. What a PITA. The worst part was when students got an IRS information request letter for education tax credits (I worked at a grad school) - students were sure that it was somehow my fault that they got the letter due to the fact that they didn’t understand their 1098-T. I would just provide them a print out of their charges & payments, which was what they needed to prove that they were eligible.
Just read through this thread. Interesting. I personally have always taken the time to try to do it correctly, including not double dipping with AOTC tax credits and 529 withdrawals. I imagine some people do it wrong (by mistake and on purpose) and I also imagine some people cheat on their taxes. tsbna44 - you have no idea if most people are cheating with 529 withdrawals or not. I like to think that most people attempt to do it correctly. I have a problem with someone on the internet claiming most people cheat with no evidence. I imagine someone could look at it and say it sounds like most people are doing it, so I might as well cheat too. I personally do not like to encourage it.
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