Hey! I’m an incoming freshman in Florida and I got very good financial aid (a combination of Bright Futures, merit aid, need-based federal aid, tuition assistance from work, and private scholarships) and have my tuition, room, and board covered. For my Fall semester I’ll be receiving a refund of $2,200. I pre-ordered my textbooks and along with MyMathLab they aren’t going to be more than $300.
So, what to do with the excess money? I’m legally blind and can’t drive so no car in my future. My meal plan is unlimited and I get $300 in BistroBucks a semester for on-campus restaurants. I already have everything for my dorm, school supplies, and two nice graphing calculators. My roommate and I divvied everything out and have the necessities + fun extras (a TV, a Wii, a Keurig, etc).
My current plan is to keep $500 available just in case and put the remainder in my 529, which has a little over $2000 in it. I have $1,400 in my savings account, and I have a student credit card that I pay the balance of in full monthly.
Is there a better way for me to go about this? Is there some piece of information I’m missing that would convince me to /not/ move the money to my 529?
Congrats on getting your college tuition and expenses covered so well!
Questions:
How much of your funding is in the form of gift aid (that you do not have to pay back) and how much of it is in the form of loans (which you do need to pay back after your graduate)? If the total amount of your gift aid exceeds the total amount of qualified educational expenses (tuition, books, supplies), you will have to pay income tax on the excess amount. Any grant or scholarship money that is NOT for tuition, books, or educational supplies (like calculators and computers) is taxable.
Will you have money available to pay the income tax, if necessary? If you put the excess in your 529, you cannot use it to pay your income tax because income tax is not a qualified educational expense.
3… Do you have a source of spending money? You’ll need money to go spend at the drug store for supplies throughout the year, for entertainment, and for public transportation or uber.
How much, if any, is in the form of loans? If some of it is a direct student loan, you can opt not to take the refund. You'll be paying interest on it.
I would hold out a tad more. You will need money for your taxes…but will you get the same refund in January…because you could allocate that refund to 2018 taxes if you end up owing any (the standard deduction has increased so you might not).
What about money for local transport…Uber or lyft or taxi?
Re: the Direct Loan…you would only be paying interest NOW if it’s an unsubsidized Loan. Is it? @brantly no interest now accruing on subsidized loans.
Agree about spending money. You don’t need a huge amount but you do want some. Maybe $50 a week…and then reevaluate after a month or so and see what you really need or want.
It is 100% gift aid, no loans. I’m not very worried about my taxes because I’ve been having taxes withheld and my employer is known to withhold more than necessary. I provided more then 50% of my own support and will not be claimed on my mother’s taxes as an dependent. I will have my standard deduction + the additional $1,600 deduction because of my blindness. So I do expect to be paying some taxes but not an overwhelming amount I can’t handle.
I’m going to Flagler in St. Augustine which is mainly a walking town so I hadn’t thought about extra money for transportation costs. I’ll definitely allocate some of the funds to that.
According to the scholarships I have already received I will be refunded ~$1000, and I am waiting to hear back from other scholarships I applied for before. Winter break I’ll be coming home and working, and expect to make enough money to have generous breathing room.
In your original post, you said your refund would be about $2,200. Above you said $1,000. You can calculate the amount of your refund by figuring out the amount of gift aid you are receiving that exceeds the billed costs of your college. Billed costs include tuition, campus housing, campus meal plan, and any required fees.
If your room and board costs about $10,000 and you have a refund of about $2,000, you could be taxed about 12% of it in taxes.
Sounds like you’re really on top of this. I wouldn’t recommend putting it in your 529. It wouldn’t be available for daily expenses or emergencies.
Generally (depending on the specific plan rules), it would be available for daily expenses or emergencies, subject to income tax on the earnings portion of any distribution used for those purposes.
That being said, if OP will have 100%+ of her expenses covered by grants and scholarships throughout college, there isn’t any need for the 529 account, unless she’s planning on getting an advanced degree and is saving for that.
The 529 was set up by my mom when I was younger but never got built on because of financial reasons. I was considering closing it and moving the funds to an ABLEnow account.
When using 529 funds for non-qualified expenses, isn’t there a 10% penalty on the earnings? Although in her case it wold be a small amount. Also, there’s a state income tax recapture if her state allows a state tax deduction with the initial contribution.
Understandable, and kudos to your mom for the initiative in setting up the account. If your mom owns the account and you are the named beneficiary, any action to close the account and move the funds will have to be done by your mom. If you do have an advanced degree in mind, you could keep the account as is for possible future use, but unless you’re pretty confident of graduate work, you probably don’t want to add any more money to the account.
I am majoring in Hospitality and Tourism Management and am also very interested in Accounting or Finance, and although I can’t declare a second major until my sophmore year I plan to take on one of the two. Certifications/grad school are definitely in my future but I feel that the ABLE account would be more beneficial for me. I haven’t talked to my mom about that yet but I don’t think she would oppose. Since she cannot afford to pay for my educational expenses I have been very financially independent since I was 16, and she trusts me to do my research.
Because of the amount of scholarships and grants that OP has received, it’s a pretty good bet that any non-qualified distribution from the 529 will be covered under the scholarship exception and not be subject to the 10% additional tax.
I’m assuming that OP lives in Florida, which has no state income tax and therefore no state tax deduction for 529 contributions.
On individual level, i’m happy for this kid and truly impressed. On collective level, this system is unbalanced. Some students get more than they need, others not nearly enough to make ends meet.
And in Florida there is a very nice program called Bright Futures that covers a lot of the costs. Many kids are getting refunds because they earned the BF and they earned other scholarships. The state benefits because all those future taxpayers are staying instate, adding to the brain trust.
I agree that the system to pay for college is harshly imbalanced, but in my case I received funding from multiple areas (federally funded need-based aid, merit from my school, merit from my state, private scholarships, and tuition assistance from my job). In fact, if it weren’t for the tuition assistance I received I would have a bill of around $300 to pay. I know I wouldn’t be in the same situation if I had chosen to go to a few of the schools I was accepted at, and the school I chose does play a big part in how my financial aid worked out.
I worked two jobs my senior year after my family was displaced by Hurricane Irma, I paid for my own food, clothes, and school uniforms, and there were times where I had to do the same for my younger sister. My older sister is in college and my younger sister starts next year so money is going to be very tight with all three of us in college.
I’m not used to having money that isn’t already urgently needed for something. I’m very lucky to be in this situation, because I will not have to work to make ends meet and can focus on school, but I also worked very hard to get where I am.
@annabanabelle Wonderful for you that you made this work for your education!
@CupCakeMuffins If I am not mistaken, this poster’s financial situation is quite significantly different from yours. You are paying for two nephews in college, plus your own son. I am assuming you don’t have trouble finding money for food and have not been homeless. I would not begrudge her the aid.