Our twins each accepted offers from colleges last spring. They used to have laptops provided by their high school. As high school graduation neared, we bought them the laptops they would need for college.
Soon thereafter, one of the twins decided to take a gap year because of covid. They are now traveling, working, interning, etc. - not earning any college credit or doing any official program.
So… for the gap year kid, I think we can’t repay ourselves for the computer from the 529 this year because they won’t have a 1098 (or whatever it is) from a school saying they were enrolled anywhere. Could we have the kid buy it from us during 2020 and then let him get the money from the 529?
It’s not really a fishy idea – we really just bought it for college – it hasn’t gone on the travels.
Disclaimer: I am not a tax attorney/accountant, not professional guidance, etc., etc.
IRS publication 970 says
The purchase of computer or peripheral equipment, computer software, or Internet access and related services if it’s to be used primarily by the beneficiary during any of the years the beneficiary is enrolled at an eligible postsecondary school.
Seems to me the “to be used” and “any of the years…enrolled” language could justify this. As long as it’s actually eventually used.
The other challenge is that I’m pretty sure you need to take the 529 reimbursement in the same year as the expense.
Now, if you take reimbursement this year and the child never enrolls…hmmm.
I’m not clear on the “buy it from you/let him get the money” approach.
thank you.
I’m on my 5th year of using 529 plans for college costs. Based on everything I have read and seen about the process it seems that the only thing the IRS really looks at in an audit is whether your 529 withdrawals exceed the published cost of attendance for the school in question, as adjusted by any financial aid.
College costs are fungible so they don’t really track whether say a computer is used for college or by Dad for business, or whether the books bought were college texts or recreational reading, or whatever. It is simply a math exercise.
If the published cost of attendance for the school in question is $50,000/year and the student got a $10,000 merit scholarship then the IRS would allow 529 withdrawals of $40,000 for that year. Of course school years and tax years don’t line up. But that is the principle.
If your 529 withdrawals for a year are higher than the published cost of attendance, that isn’t necessarily a problem. You would just want to have the actual costs documented so that you could defend them in the rare event that you were ever audited.
Myself, I have just been using the 529 to pay the semester bills from my daughters college. Which contain all kinds of various line item bills from parking fees to sports tickets to technology fees and so forth. It is all fungible. I could pay the tuition bill with the 529 and the parking fee through a separate check but it all just goes into the same payment account. I don’t get separate receipts for the separate items.
In your case, I wouldn’t pull the money out of a 529 this year if the girls aren’t in college. Better to put it into the 2021-2022 school year 529 withdrawals and just make sure the total 529 withdrawals don’t exceed the published costs of attendance for the schools in question.