<p>I cant find this in the IRS publication or on CC.</p>
<p>If you take out loans to meet your entire Cost of Attendance after scholarships, aid, and credits, can you withdraw 529 money to pay for those loans, which in turn are paying for 529-qualified costs (Tuition, Required fees, Books, Supplies, Equipment, Room, Board)?</p>
<p>Why wouldn’t you just pay the bill with the 529 money and borrow less (or skip the loan entirely)?</p>
<p>Qualified withdrawals from 529 accounts have to be done the year in which the expense was incurred. If you take out a loan in January and repay it with a 529 withdrawal in December, you’re fine.</p>
<p>Right. Has to be for same year expenses.</p>
<p><a href=“http://www.bankrate.com/finance/college-finance/raid-a-529-to-pay-off-a-student-loan.aspx[/url]”>http://www.bankrate.com/finance/college-finance/raid-a-529-to-pay-off-a-student-loan.aspx</a></p>
<p>PS - the 529 funds can only be used for a subset of the cost of attendence … tuition, room, board, books, and a computer if it is required … over expenses such as fees can not be paid (legally) with the 529 money.</p>
<p>Possibly related question…S has received his first bill which itemizes room, board, fees, tuition.</p>
<p>His scholarships and financial aid show up on the bill as credits and there is a balance left over.</p>
<p>For the purposes of taking the education tax credit next year (which can’t be for R&B), how do I know what the scholarships and such covered? Is the balance I paid for tuition or for R&B or both or…?</p>
<p>If the scholarships don’t specify what they’re for, you can treat what you paid as going toward whatever portion of the bill is most beneficial to you. Keep in mind though that scholarship money that doesn’t go toward tuition is taxable.</p>
<p>These are all federal/state and institutional grants. Both merit and need based (no outside scholarships). So I can treat the balance I am paying as if it all is for tuition (not R&B) for tax credit purposes?</p>
<p>I can see a snafu coming at tax time, S’ college sends a tuition statement for tax purposes but sends it for what is billed that year, not what was paid in that year so I’ll have to do some math there…and figure out if it makes sense to pay early or leave some for next year, we’re on a 10 month payment plan.</p>
<p>I don’t know if any of the grants have restrictions on their use, but if not, you can treat the balance you are paying as tuition, BUT, your S will owe taxes on the portion of his grant money that went toward R&B. Since the parent can take the credit, it’s probably worthwhile for you to take the credit and reimburse your S for the tax liability.</p>
<p>Food for thought, thanks mathmom.</p>
<p>S also has a student loan. That loan amount plus the balance we pay in cash roughly equals the cost of R&B. </p>
<p>So can we say the loan was for R&B and the amount we paid was for tuition…? Seems like schools ought to spell out what was applied to what, huge grey area here.</p>
<p>you can definitely put the loan toward R&B. You only need, I think $4K paid toward tuition in order to get the tax credit, right? (I’ve repressed tax season.) If your son’s total grant aid plus 4K of what you paid exceeds tuition and other qualified expenses (I think required textbooks count) then you will need to pay tax on the difference if you want to take the full credit. Check the archives, this has definitely been done to death here last year ;-)</p>
<p>Keep your own records of what you pay each tax year. Then use those figures instead of the college’s billing figures. It is a pain I know, but most of us have to do that.</p>
<p>Thanks. I looked at a couple of old threads and I think I get it. I’ll also have the 1098T or whatever it is to help. I’ll probably post about it again in January :)</p>
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<p>That’s not true about required fees:</p>
<p>Qualified education expenses. These are expenses related to enrollment or attendance at an Eligible educational institution (defined later). As shown in the following list, to be qualified, some of the expenses must be required by the institution and some must be incurred by students who are enrolled at least half-time. See Half-time student , later. </p>
<p>The following expenses must be required for enrollment or attendance of a Designated beneficiary (defined later) at an eligible educational institution. </p>
<p>Tuition and fees.</p>
<p>Books, supplies, and equipment.</p>
<p>Expenses for special needs services needed by a special needs beneficiary must be incurred in connection with enrollment or attendance at an eligible educational institution. </p>
<p>Expenses for room and board must be incurred by students who are enrolled at least half-time. The expense for room and board qualifies only to the extent that it is not more than the greater of the following two amounts. </p>
<p>The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student. </p>
<p>The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution.</p>
<p>[Publication</a> 970 (2011), Tax Benefits for Education](<a href=“http://www.irs.gov/publications/p970/ch08.html/ch08.html#en_US_2011_publink1000178531]Publication”>http://www.irs.gov/publications/p970/ch08.html/ch08.html#en_US_2011_publink1000178531)</p>
<p>Note that the 1098-T is helpful, but only to a point. They report what was billed, and what was given in grants/scholarships, but don’t always not what was paid prior to January 1st.</p>
<p>I would call the school and ask directly whether that scholarships are for tuition or can be used toward room and board - many grants are specific in how they can be used, and you can’t just decide you paid the tuition portion.</p>
<p>Also consider carefully whether you want to count the scholarships as tuition or as taxable paymets toward room & board or other expenses.</p>
<p>taxable payments increase the student’s adjusted gross income, so not only could they be taxable (to the student who is a dependent of the parents since he is not providing half of his own support), but they might come into play in determining aid the next year. </p>
<p>Remember also that the second $2000 results in only 25% credit - will that be more than the tax on the $2000 and any resulting reduction in future aid.</p>
<p>Remember also for the full amount, if the student qualified for full need based aid, the parents might not have any tax liability. If that is the case, they are only getting 40% back as a credit (the refundable portion). Again, for the first $2000, that’s 800 in credit, for the second $2000, that’s only $200 an credit.</p>
<p>Further, if you pay someone to file your taxes, they will charge more for the extra forms on the parents return, and the studen’t return may become more “complicated” as well. It’s not so cut and dried.</p>
<p>Should 529 dispursement checks be made out to the college or student. If it is made to the college should I specify that it is for tuition not room and board?</p>
<p>Requesting the 529 payment directly to the school could be a mistake if you are not sure how the school treats the 529 money in its financial-aid process. Schools often receive checks for outside scholarships won by their students, and they will typically reduce the student’s federal and school-based grants by an equivalent amount.
You would not want the school viewing the 529 money the same way it views a scholarship and reducing your child’s financial-aid package. Check with the school first and confirm its policy with respect to funds received directly from a 529 plan. You always have the option to request the distribution be made payable to you or your student. It then becomes your responsibility to pay the school.</p>
<p>beolein, that sounds like it should be easily correctable by showing that it was money from already correctly reported 529 savings rather than a scholarship. At least I hope so because our 529 just added the option to pay direct via 529 money and we used it for the fall semester!</p>