Well… if my son goes to one particular school, I’ll be paying ONLY for room and board through the 529 because his tuition will be taken care of. So I wonder what the 1098-T would even be reporting. In that case, I guess I’ll warn him that we could get an IRS letter and have to send in additional paperwork. If he doesn’t go to this particular school, the 529 will be used exclusively for tuition and maybe there won’t be an issue.
That leads me to another random question. Which address does all this stuff (1098-T 1099-Q) get sent to? If it’s in my son’s name, does it go to his college address? Or our home address?
That will depend on the address you have on file for the beneficiary. My youngest (undergrad) has her permanent address listed as the beneficiary address. The 1099-Q, if one were mailed, would come to the house. I choose, however, to have nothing mailed. My oldest, who is a grad student and bona fide adult paying her own bills, including half tuition, would get a form at her address as that is the beneficiary address I have on file.
The 1098-T will report the money he received in scholarships and grants in one box, and then it will report the tuition charged and allowed fees in another. Those numbers might be close if the sch/grants really do pay the tuition and fees. What won’t be on the 1098-T are amounts you spend for books or other allowed QEE costs. It won’t mention the room and board at all. It also might or might not included scholarships and grants from outside sources. You just have to look at the bills to see how they add up.
If you receive scholarships for room and board and that amount can only be used for room and board, the scholarship amount will be included on the 1098-T in the ‘sch received’ box, but the cost of the r&b will NOT be in the tuition box. You have to do the math yourself. (In fact I do ALL the math myself as I’ve now received 10 1098-Ts (5 tax years x 2 kids) and not one has been correct)
This is the case whether you have a 529 plan or not. The 1098-T is for QEE and amounts received in aid, not for how it was paid --529, cash, loans, grandpa’s bank account. It doesn’t matter for the 1098-T
It goes to the official address with the school. Usually students list their parent’s address for official mail. 1098-T are often not sent anymore but are available online. In fact, I don’t get bills from my kids’ schools either, the info is online. I just use my kids’ portals (and passwords) but parents can get their own access for financial info.
The only things I’ve received by mail is a W-2 because she worked for the school.
Got it. Makes sense. This whole 529 plan issue reminds me of the flexible spending account for medical payments. For ours, we always need to send the fund manager copies of receipts in order to get our own funds back! And sometimes even that isn’t enough. Next up will be filming our actual transaction to show that indeed the $8.68 was used at the pharmacy for a legitimate prescription, and But not on a pack of cigarettes or booze. But I get it. Not everyone is honest. Just seems pretty pathetic that the govt can’t figure out a better system other than using the 1098-T to show only a portion of the QHEE that are allowed.
@WantWhatsBest, depending on the policy of the college your son may not receive a 1098-T at all. Colleges aren’t required to prepare 1098-T forms for students who receive scholarships that cover tuition and fees, and some colleges only prepare the forms they’re legally required to do. My son’s going to attend UT Dallas in the fall and will receive scholarships in excess of tuition and fees; I checked and learned that UTD does not prepare a 1098-T for any student in his situation. So we will have to keep track of everything ourselves because he will owe tax on the portion of his scholarship in excess of tuition, fees and books.
At first, I requested the direct deposit into my Ds student account. As it was near the end of the year and it takes several business day to process, so I was not so sure if it the withdrawal and the payment are in the same year. Now I just request the amount to be sent to me and I pay the school at the same time.
Our school didn’t SEND them, but they are prepared and online. However, as I said they are never correct. I just print out all the billing and do the math myself. Add up all the tuition and fees. Add up all the scholarships. Make sure to remove any loans. Find any outside scholarships (even if reported to the school the school doesn’t include them in the billing and just counts that as money paid by the student), add up the books and equipment charges.
Rarely takes more than 3 or 4 days to do the taxes!
One of my kids has 5 things billed, 9 sources of grants and scholarships, and somehow the billing statement turns into 3 full pages of items being posted, removed, reposted, divided, reposted. We are on our 8th and last semester and I have never figured out why things get posted and removed and then reposted exactly the same way.
No 529. One child has everything covered by her grants and scholarships. Several of her awards can only be used for tuition, and this year she had a specific meal plan covered, but it’s easy to track all that from the bill. That’s why when I look at the 1098-T it is of little value since they lump everything into one box. She pays quite a bit in taxes.
The other child doesn’t have everything covered, but this year I’m running into trouble as she did a study abroad last year and now I’m being told nothing was charged for tuition. Really? Tuition was free and all those teachers just volunteered their time? I have a feeling I’m not getting the right information.
It is really never ending trying to keep up with financial aid and taxes.
Ugh. This sounds like a nightmare. Our tax situation is already a bit complex. Compounding that, our CPA isn’t that great. That’s why I’ve been determined to learn everything I can. This forum helps a lot.
I’m wondering if this has changed or will change. Starting in tax year 2016, a taxpayer was required to have a 1098-T in order to claim an education tax credit, with limited exceptions. Granted, most students whose tuition and mandatory fees are completely paid with grants and scholarships have little, if any, other expenses that are qualified for the tax credits. However, students have the option to declare as taxable any part of a scholarship that is normally not taxable, and thereby use the expenses that are paid with the now taxed scholarship in a claim for a tax credit. Not having a 1098-T issued by the school will be a serious road block in this situation.
^^ I didn’t have a problem with it. I use a tax program to do the taxes. It asked if I had a 1098-T and I said no (even though there was on online) and the programs just let me put in the information myself. It will let you say yes, enter the 1098-T info, but then it asks what is incorrect and instead of just putting in the correct numbers you have to correct the wrong numbers. I found that very difficult and easier to just say I did’t have the forms (and they weren’t sent to me, just online).
UMich did not issue 1098-T if the gift aid amount is less than the QEE (tuition) until 2016. However, it was the year that my D got additional scholarships and the total became more than the tuition. So I am not sure if the policy has been changed or not.
You may not have downloaded the 1098-T, but there was one produced by the school, a copy of which was sent to the IRS. The IRS had is. That’s all they care about. It didn’t matter that you told the tax program that you didn’t have a 1098-T.
If you pay your college bill using only 529 money, you can’t take the tax credit. The same dollars taken from a tax-advantaged 529 account can’t be double-dipped for a tax credit, too. My original post was arguing for making a four year plan to use all the benefits you would need and/or be eligible for. I don’t see any reason to pass up a tax credit you are eligible for except not knowing enough to plan ahead to use or claim it.
That’s assuming the parent has increasing assets. The thread started off discussing strategies for spending down a 529 account – whether to withdraw the max amount in year one or spread it over four years or what. My answer was directed towards making a four-year plan, not a one-year plan. When you have kids in college, your assets are often declining as the tuition bills come in, not rising. Some people think once the 529 is gone they’ll get more financial aid. Because the 529 assets were only reducing financial eligibility at about 5 and a half cents on the dollar, they aren’t actually going to get that much more aid (if anything) by spending down a 529 more quickly.
Again, my original response was just supposed to be about making a four year plan, taking into consideration the 529, the tax credits/deductions, and the availability of loans so that you spend down your assets with the big picture in mind. I have a friend who was so proud to send her kid off to college and not take any loans the first year. She spent her assets too quickly and should have had her daughter that freshman loan because she’s going to be in parent PLUS loans by year three and the freshman loan would have had better terms. If you’re looking at the big picture, you don’t miss out.
@twoinanddone, no, they actually do not prepare a 1098-T, nor are they required to for students whose tuition and fees are entirely covered by scholarships.
In the attached link to the instructions for form 1098-T you can see that educational institutions are not required to prepare the forms for students whose tuition and fees are entirely covered by scholarships:
I get you @AroundHere , that’s exactly what I did. Strategically used loans, cash and 529 funds so I could qualify for the AOTC all 4 years. I always had the 529 $ sent directly to the school not to have to worry about any IRS questions. And the 529 $ was less than the tuition billed so we didn’t need to worry about any questions arising that way either.
For most people who are eligible for education tax credits, it’s probably better to not pay all of the tuition and fees with 529 dollars, so that up to $2,500 in a tax credit can be claimed. In my opinion, foregoing a $2,500 tax credit is much worse than having an extra $4,000 in the 529 account at the end of the beneficiary’s undergraduate years. That money can always be repurposed, either by naming a new beneficiary, by using it for graduate school, or even using it for non-qualified purposes (in which case, by the way, the 10% additional tax would be waived due to claiming the tax credit). So yes, make a four year plan, and include in the plan a spending strategy that allows claiming the education tax credits whenever possible.
It’s not assuming increasing parent assets. Believe me, I understand that as college expenses are paid over the years, assets will likely decrease. If $150,000 is spent from a 529 account over the first six semesters, it wouldn’t be unrealistic to see an additional $8,400 in need-based aid for the fourth year as compared to the first year. Of course, lots of other numbers factor in here too, and it depends on how each college crunches them, but a grant of $8,400 is nothing to sneeze at.
If they have to gather the info and basically prepare them anyway (can’t know that they DON’T have to prepare one until they actually compare the tuition box to the scholarship box), why not just put it on line for all? That’s what my daughter’s school does. Plus, if there are any mistakes (funds in the wrong tax year) the student or parent can fix it when filing.