My son is doing a semester abroad. The roundtrip airfare is not included in the price of the program. It costs $750. I believe you cannot take a qualified distribution from a 529 plan for travel expenses. If my son is also receiving a scholarship, and part of the calculation of the scholarship is the cost of the airfare, can I use scholarship money to pay the airfare? For example, if the school costs $20K and he receives a $10K scholarship, can I say that the airfare is paid from the scholarship , leaving $10, 775 to use for qualified 529 distributions? Perhaps it is determined by how the scholarship is disbursed (to him or the school)??
If the scholarship is used for non QEE, it’s taxable (but might be well under the standard deduction for him). If the scholarship is allowed to be used for anything, then I think you can do it.
You are right that travel is not a 529 qualified expense. As long as the scholarship rules allow what you are proposing, I think your scenario is kosher. I agree with twoinanddone that scholarship money used for travel would be considered taxable income, but after the allowed standard deduction it may not be a factor.
Thanks for the responses. As for my math, I think I meant that the bill from the school was $20K, meaning the total cost including airfare was $20,750. If the scholarship was $10K, that would leave $10,750 left to be used as qualified 529 funds.
The one point I am still wondering here is if the $10K scholarship just shows up as a credit on the college bill, leaving a balance of $10K on the bill and $750 billed separately through the airline, is it still ok to say that $750 of the scholarship from the bill is actually for something not on the school bill?
I don’t think so. If the scholarship amount is credited on the school’s bill and only offsets expenses directly billed by the school (tuition, room, board, etc.), it’s hard to argue that any of the scholarship paid for the airfare. I have seen overseas programs where the school pays for the airline tickets and includes travel expenses as a line item on the school’s bill, but if you are paying the airline directly and the scholarship money has already been allocated to other expenses, I think you’re out of luck.
Thanks. No big deal here either way. I’ll probably give the school a call and ask them about it. I find it odd that they are including the cost of the airline in their financial aid calculations but then sending the money to the study abroad program who has nothing to do with the airfares. Even though I find it odd, I guess them taking into consideration the airfare can only get us more aid, so no real complaint here if the only consequence is that I can’t take a 529 qualified withdrawal for it.
Many schools take into consideration travel costs when setting the COA, but that doesn’t mean the school pays the costs. Colleges often include travel in the COA, along with incidentals, a higher estimate for books, parking, etc., even if students don’t pay that much or pay more for books or travel home every week. The transportation is just part of the COA so the student can borrow that amount if they want to. It doesn’t turn it into a QEE.
Is the travel abroad tuition part of the school’s tuition? When my daughter studied abroad, I thought it was all through her school but it wasn’t. The school sponsored it, many of the professors were from her school, she could use all her FA (and an extra study abroad award) but the school sent all the money to her and we paid the big fee to some private company in Connecticut (and bought the airline ticket and other things separately). No problem until I went to do her taxes the next year. NO 1098-T was issued from the Connecticut business and they claimed NONE of it was tuition - despite 12 credits going directly to her university. The $9000 was all for room and board, 2 dozen different types of fees like London tube pass, a college union fee, advising, instruction, classroom fees, insurance. All fees. It became so complicated that I just didn’t take the AOTC for that year. I did get a 1098-T from her university (for the other semester) but I think there was $150 from the London semester on it for a fee the university charged for ‘transferring’ the credits - which were taught by home university professors! We could use the FA received by the school for anything we wanted (including an airline ticket) since it was sent to us directly, but the company in CT needed the full payment before she even left the USA.
Anyway, don’t assume your tax year will be the same if studying abroad.
@twoinanddone Thanks. I am not sure what that last line means. As far as I know, the only restriction I care about is that payments to the school/program need to be in the same year as the 529 withdrawal. Are you suggesting that I may pay the study abroad program at the end of December and it won’t actually be paid till next year? Or something like that?
Sorry, I just meant that for the tax year my daughter studied abroad, it was much different than the tax year(s) when she did two semesters in the USA.
For her, the cost of the study abroad program was a little less than if I’d paid tuition to her university (she lived off campus while at school). I thought she was ‘attending’ her university since it cost about the same, courses were taught by her professors, there was no separate application (just to the study abroad program at her school), she didn’t have to have courses approved or transfer credits. I didn’t even know I needed to pay a different source until there was a rash of emails in Jan just before she left. Usually the spring semester starts about Jan 25 and full payment for the spring semester was due in Feb. In early Jan I got the email to pay this group in CT, and the school processed her FA early so we got the check about Jan 10 rather than the normal Jan 25. I then had to pay the ‘tuition’ with that. Fine, I did it. Then the next year when I pulled the 1098t, none of that payment was on it. I called many people at her university and at the private company and no one would budge, it was all ‘fees’ and no tuition at all. School was totally free but those fees added up, surprisingly, to the same amount as tuition! I thought it was tuition but apparently not.
Since the AOTC can only be taken for 4 of the 5 tax years a typical student is in college, I just skipped that year and took it for the next tax year. It was easier than trying to figure out what was a QEE and what wasn’t for that tuition free year abroad. We didn’t have a 529 so I didn’t have to justify withdrawals. It worked out okay for me tax and credit wise, but it was a surprise at the time I was doing taxes.
The last two posts lost me. If a scholarship is being used to pay a portion of school expenses, what 10% penalty are you talking about? That is money not being paid from the 529 plan.
I think they mean if 529 money is used for non qualified 529 expenses, then there is a 10% penalty for early withdrawal. As long as the funds are used for qualified expenses, no penalty.