My experience with 529 distributions, and one that admittedly may not be available with every plan, is to use an ACH (electronic) transaction to send the requested funds directly from the 529 account to the student/beneficiary checking account. The transaction can be initiated with a phone call, and without exception has appeared in the checking account, fully available, the next business day, without any fee required.
My thoughts: the 529 funds were saved up over some period of time in order to pay for four years of college, so spread them out over those four years. In our case, I have the appropriate share of the remaining funds sent directly from the 529 to the college each semester.
Use other available savings and current income to pay the balance of your Family Contribution to the extent possible. Take advantage of the AOTC (if you can).
Avoid taking out loans if at all possible. If you do need loans, have your kid get the Federal loans (subsidized only if you can avoid the un-subsidized ones) before taking out any other kind of loan.
If possible, the kid should be working summers and even part-time during the school year to help cover costs and their incidentals. So expect the student to cover the travel, books, personal expenses ($2300).
Thus after the financial aid grant of $10,000, that leaves $30,000
1/4 of the 529 = $9250, which leaves $20750 – can you come up with that from other savings and current income?
If not, add the student loans:
subsidized at $3500 leaves a balance of $17250 – if you can’t swing that, then unsub loan at $2000 leaves a balance of $15250
Can you come up with that from your other savings and from your current income? Don’t forget that the kid won’t be eating at home or using your utilities for 9 months, and that you can save $2500 off your taxes. You might also save on your auto insurance. These are all funds that you are spending out of your current income now, that become available to help pay the tuition bill.
Is it possible that the kid could earn more than $2300 working and thus could contribute some towards their room and board as well?.
You are assuming the $3500 will be a subsidized loan. It often isn’t.
The AOTC, if eligible, won’t be ‘seen’ by the parents for at least the first year, which would be an argument to take more out of the 529 at least the first year.
The federal loans are already IN this student’s package. The final family cost of 26,800 is what’s left after scholarship AND federal loans. The OP indicated 3500 of the direct loan is subsidized.
As to the 529 question … since additional loans will start accruing interest right away, you may want to try to borrow less the first couple of years, but I still wouldn’t drain the whole account year 1. As noted, make sure you are paying $4000 towards tuition with non-taxed advantaged money (not the 529) in order to claim the AOTC. Finally, we preferred to have the money sent directly from the 529 to the college. When you do that, the 1099-Q is sent the beneficiary (student), not the parent. Honestly, though, if you’re using the funds for allowable costs (college’s published room and board, for example), there shouldn’t be tax consequences for anybody.
AOTC funds won’t be “seen” right away, but then are you living paycheck to paycheck, or is there a cushion to see you through situations like this?