<p>My parents have a 529 for my D's benefit, from which she will receive $5000 per year toward college education. There are several things I'm wondering about. It looks like on the website that a check could be made directly to the beneficiary, my D, for a disbursement. I want to make sure my parents get whatever tax benefit they should be getting and also minimize any effect on any aid that we may receive (which won't be much -- unless merit type aid, but could be a few thousand depending on the school and their methods etc. )<br>
If check were written from the 529 to my D, deposited in her checking, and then she writes a check to her college towards tuition and provides my parents with a receipt of this transaction -- does this work from a tax perspective for them?
And, does this method leave intact any aid we may receive? As opposed to a check going directly from the 529 to the college?</p>
<p>The tax benefit to your parents of a 529 is that the funds are growing tax-free and do not get taxed as income on withdrawal. Your parents might also get a state tax credit or a tax deduction for any 529 contributions in the year the contribution was made, depending on the state (not all states give state tax credits or deductions). There’s no reportable taxable event on withdrawal, either for your parents or for your daughter. </p>
<p>Your parents can withdraw from the 529 and deposit into your D’s checking account. The only thing I’d suggest being careful about is to match the withdrawals to the payments, both in the dollar amount and the year. In other words, have the amount of both the withdrawal and your D’s check to the college be exactly the same, and the transactions done within the same calendar year. No receipt is needed; in the unlikely event that you’re audited by the IRS (someone on CC was last year) all you need to do is prove that the money went to qualified higher educational expenses, and you can get a receipt from the bursar’s office for that if/when you need it.</p>
<p>It shouldn’t matter to the college where the check comes from, although some Profile schools will want the grandparents’ payments listed under “other support”.</p>