<p>I have a 529 through my brokerage account. I've been trying to research how the withdrawals work. </p>
<p>What I have garnered so far is that no proof is required by the brokerage company for the withdrawals. I just fill out a form and write in a number. The proof would/will be required only in case of audit. Is this correct (I'm not planning anything sneaky - just trying to understand)?</p>
<p>I believe I can expense his full fall tuition (including sports fees?) and some part of his private dorm (technically off-campus) housing. I paid for the whole year (gave me a small discount), so I think I have to break that withdrawal into two parts. </p>
<p>I'm not clear on who will tell me the amount of housing I can withdraw. Do I contact the school's FinancialAid? And exactly what info do I ask for? I think it's the average cost of living on-campus + mealplan...is that correct?</p>
<p>Any other hints would be appreciated. It's the Nebraska 529. There is a surprising lack of information on the brokerage site. I will continue my googling....thanks!</p>
<p>No proof of the expense is required at the time of withdrawal. I am able to transfer funds online from my 529 to my checking account, and must indicate on the transfer request whether the funds were to be used for allowable or non-allowable purposes. I was advised to keep documentation showing that the funds were used for approved purposes. </p>
<p>Our financial institution also had surprisingly little information about 529 withdrawals on their site. I was fortunate enough to speak to a representative who has a daughter in college and also uses a 529, and he was able to fill in some of the gaps. He also advised that I consult the IRS website regarding what is/is not considered an allowable expense. </p>
<p>S is living in a dorm on campus with a meal plan, so we knew exactly what we would pay for those costs. Once we received the tuition bill, I tranferred the exact amount for tuition+room and board. For books, supplies, etc., I am hoping that S hangs on to receipts, and I will deal with withdrawing those funds later. </p>
<p>S will be moving off campus to an apartment next year. Documenting the cost of rent should not be a problem, but I am thinking that it may be too cumbersome to keep track of utility bills, food receipts, etc. to justify using the 529 for those expenses.</p>
<p>If a student is living off campus then the amount you can withdraw from a 529 account for room and board is amount for room and board amount included in the school’s COA. You cannot withdraw more (tax and penalty free) even if the costs are higher. If the student is living on campus then you can withdraw more if the actual cost is higher. The IRS publication with all the rules for education tax benefits is IRS 970. The rules for qualified tuition plans start on page 69.</p>
<p>AllThis, if possible, have the 529 holding co. send the check DIRECTLY to your son’s school. It’s cleaner, in that there’s no question that it was used for higher education.</p>
<p>I was surprised to discover that not all schools will all this direct payment, but many schools do.</p>
<p>Check with the 529 plan and do not rely entirely on this forum for advice. However, forum experiences do give you ideas about questions to ask and issues to be aware of. </p>
<p>Also, check with your school’s preferred policy. Each state plan is different and each school has different ways of dealing with it. We have seen this play out in various ways due to a complicated combination of scholarships and savings plans. </p>
<p>For example, my S has a Missouri 529 created by my father (owner of account for S). Grandpa had to fill out a form/request online with MO 529 with my S’s college account number and an amount. My father could do this as soon as my son had an account after admission. The money was deposited directly to his account at college before classes began. Then, a VA 529 fund that S won in a scholarship competition in Virginia, required that we fill out a form, fax it to the 529 saying to send funds to S’s account at college. The VA 529 plan waits for the school to say he is enrolled and THEN transfers the money after the drop-add period ends. School knows that VA 529 works this way so they waive any late fees for the VA 529 portion of the bill.</p>
<p>Then…yikes, years ago we started a small coverdell savings plan to pay for books and supplies…They say save the receipts and S can be reimbursed from that savings plan. Last, show transfer from my checking account for the remainder of tuition and board to get the tax break. </p>
<p>We haven’t had a problem with having the 529 funds sent as a check to my D, she deposits in her account, I add in my $2000 for the Hope credit (or whatever they’re calling it now), and then do a direct transfer to the college. We get a statement from the 529 company at the end of the year stating how much was withdrawn, and a statement from the college on tuition expenses, and I save the actual bill with room and board, book receipts, and last year a computer purchase. </p>
<p>If the funds are sent directly to the college, you would still have to take out money for books, computer, any other qualified expenses.</p>
<p>I’m not sure how it works when you prepay the whole year. I was under the impression that you could only withdraw the amount that was billed in a given year. My S’s preferred school will let you prepay the full 4 years at the current tuition rate, but I’m not sure I could do that under the 529 rules. I would love to hear anyone’s experiences in that area.</p>
<p>Wow…it sounds so easy when you set it up…then you try to get the money BACK!</p>
<p>The school very much prefers electronic payment (as do I). I will call the brokerage and ask if I can have the school do an ACH for tuition next semester. </p>
<p>I guess I will try calling the school to see how to get an official document listing the COA for proof. I should at least be able to recover the fall amount from my year prepay. I can transfer any extra money to my younger son later, so I’m not concerned about being reimbursed for every penny.</p>
<p>I didn’t know about the 1099, but no way to avoid that since he is technically “off-campus” (even tho just across the street in a private dorm).</p>
<p>You get a 1099 but it is no problem. There is no tax implication and you do not have to report the 1099 on your taxes as long as you have qualified education expenses . We have never had the money paid direct to the school as both our kids had FA and/or scholarships that covered direct school costs. We used the withdrawals to cover books and off campus living expenses. The school should be able to provide the COA with no problem (my daughter’s school has it easily available on line, my son’s I had to do some emailing to get it). Just make sure you keep the supporting documentation on file so that if the IRS ever does ask you can show what expenses you spent the money on.</p>
<p>My DS ended up getting a full ride but I have about 25k saved in a 529 account. I have asked around but can’t get a straight answer. Am I allowed to withdraw up to the amount of his scholarship out of the account withou penalty? Thanks for any help one can offer.</p>
<p>itsv: Looking at the publication from IRS, my understanding is that you can withdraw it without penalty but you pay taxes. Take a look at the example on page 68.</p>
<p>You have to be clear between taxes and penalty. Using a 529 plan for non education purposes triggers a penalty plus taxes. Using it for educational expense above need but less than or equal to COA will trigger taxes, not a penalty. Usual caveats, I am not a lawyer or an accountant, so you may want to talk to a professional. </p>
<p>This is my take</p>
<p>So if your COA was $25000 and you got a scholarship of $25000, any withdrawal up to $25000 will trigger taxes only, as your need is $0. If you withdraw $26000, you will pay a penalty on $1000 plus taxes on $26,000. In other words, you have to pay taxes either on the scholarship or the 529 withdrawal.</p>
<p>itsv, from what I have read, you can withdraw the amount of the scholarship penalty-free, but taxes will be owed on the EARNINGS only, not the amount originally deposited. I haven’t tried yet (disclaimer-I am not a tax lawyer either!)</p>
<p>MD529 Prepaid College Trust: When we receive the tuition bill from DDs college (In PA), we send the bill to the 529 organization. The 529 people send a check directly to the college, and send us a notice that it has been sent. Very easy.</p>