<p>For those of you who have older kids in college and are paying using funds from 529 accounts, did you have checks made payable to you, student, school? Who had to do tax reporting - parent or student?</p>
<p>We had checks made out to my husband (who is the custodial person on the account). The 529 accounts in our state do not have the option to have the check made out to the student for some reason. We did not have it made out to the school because our direct charges such as tuition and fees were covered already and we were using the funds for student living expenses (off campus) and for a computer. </p>
<p>As the expenses were all qualified education expenses there was no tax reporting required.</p>
<p>Thanks. Did you receive a statement, like a 1099, from your bank/investment co. indicating the amount of the withdrawal? If so, was it under your SS # or your child’s? Did it say if it was for info purposes only or it was being reported to IRS?</p>
<p>Recently I’ve had the funds transferred directly to my son’s checking account, but in the past I’ve had them transferred to my individual account (within the same brokerage), checks sent to me, checks sent to my son, etc. I haven’t had them paid directly to the school. For every withdrawal, I either sign a statement or (if on the phone) the agent asks if these are qualified expenses - they always are.</p>
<p>I don’t recall receiving a tax form although it’s possible I got one. I don’t report anything on my taxes.</p>
<p>For accounts that are parent-owned, the parent’s SSN is on the account. For child-owned (UTMA/529) accounts, the student’s SSN is on the account.</p>
<p>Thanks vballmom</p>
<p>I always have them transfer the money into a joint checking account with me, the custodian and my daughter, the student as owners. The fund manager views me as the owner of the 529 account, but if I ever need a paper trail for proof of who got the money for the IRS, it will show her as the recipient. I then transfer the money to the school via an epay system the school has set up. I never transfer directly to the school from the 529 account. Less people in my business.</p>
<p>I do receive a 1099 form. It does list me as the recipient, but I have proof of joint ownership that the money goes to if there were ever an audit.</p>
<p>Thanks milkandsugar. Good suggestion. Son has to open a checking account anyway. Might as well make it joint with me.</p>
<p>definitely recommend sending money either directly to the school or to the student. we had them send the money to the parents, then we paid the bill. everything was good til the letter from the irs came back in march saying we owed taxes on the income portion of our 529 withdraw. i sent supporting docs that showed we paid college. all worked out in the end, but a bit of a hassle that can be avoided by sending money to school or student.</p>
<p>Thanks. I guess it all depends if the IRS decides to check. I think I’ll go with milkandsugar’s suggestion and make sure documentation is up to snuff.</p>
<p>I just got one of those letters, Goru. I guess I will have to go through my admittedly horrible files and find some kind of documentation. Do you happen to have any helpful hints about what the IRS is looking for, documentation wise?</p>
<p>bummer. </p>
<p>I had 2 kids in school so i sent copies of 1099s from both 529s. Also sent copies of 1098-T from both schools. Then included a letter that just laid it all out for them. </p>
<ul>
<li> Here’s what I withdrew from each 529 </li>
<li> Here’s the allowable expenses from each school. </li>
<li> I matched the 529s statements to the 1098-Ts</li>
<li> The withdraws were less than the expenses, so no tax due.<br></li>
</ul>
<p>Took a month or two, but they closed the case without any further action on my part. </p>
<p>Good luck.</p>
<p>thanks, goru.
I guess I will just do the same. I know I have all those records, either in the tax folder or the 529 folder or the college bills folder…it just seems like such a pain. And also of course always alarming to hear from the IRS.</p>
<p>@goru,
If you don’t mind sharing – and I could understand why you might – do you have any hunches as to why you were targeted to explain your 529 expenditures all of the sudden? Was the sum of withdrawals larger than it had been in the past? Was there any reason that the IRS couldn’t already presume (or know) that you had a second kid in college that year? Any ideas about what piqued their interest – only ‘cause I would sure like to avoid the hassle! I withdraw a few times a year from my kids’ accounts – for qualified expenses, and I’ve had the money directed every which way! University book stores, college bursars, my bank account, and checks made out to my kids. Never thought to be worried about it before.</p>
<p>Our 529 plan is in our (parents) name. We had the check sent to us, payable to us, and endorsed it over to the college. It never went into our checking account, which I figured would simplify any proof issues for taxes. We’ve done this just once and it wasn’t questioned by IRS.</p>
<p>Our 529 account withdrawals have been made out to my husband. They have been used toward paying for non direct expenses such as rent and food. Also for a computer for my daughter when hers died and money toward internet expenses (allowed the last year or two). I was always careful to make sure we kept within the amounts allowed on the school’s COA for room and board. Hopefully if the IRS ever asks a copy of the school’s COA will suffice.</p>
<p>We have never withdrawn more than a couple of thousand a year (didn’t have a lot in there to start with). I really hope we don’t have to start explaining it all. Especially my son’s school - getting hold of their COA is like pulling teeth. My daughter’s schools has it openly published which makes coordinating all this so much easier!</p>
<p>My only explanation for why we were targeted is that we took the withdraw in our names. you’d think the IRS could make the connection to our dependents listed on the same tax return. During our daughter’s freshman year, we sent the funds directly to the school. No problem that year. </p>
<p>I’ve seen other online discussions (maybe on cc) that indicate the IRS typically investigates when the recipient is the parent. Like I said, one letter demonstrating that our distribution was less than allowable expenses was enough to close the case.</p>
<p>How long after the tax return date for the years including the for withdrawals did they ask? We have never made the withdrawals out to the school because the costs have never been direct school costs. We have probably withdrawn a little every year over the last 3-4 years - all made out to my husband. So far we have never been asked to explain them away. I wonder if the amounts involved might make a difference (ours have generally been under $2000 in any one year. </p>
<p>They were all legit - but just the thought of dealing with the IRS gives me the wobblies. We had a big mess a few years back - totally their mistake when they sent my daughter a several thousand dollar refund check that bore no relationship to her tax return (it was for more than she had even earned that year). We knew it was wrong so she didn’t cash it and we wrote back immediately. They were quite impossible to deal with - never responded to letters, then started trying to charge her interest on unpaid and late taxes based on the money they had sent her (even though the check was never cashed). Took 6 extremely frustrating months to get it all cleared up. Finally gave us a contact name foe her “case” which included a phone number. When we called the number we got a message that said she did not answer phone inquiries - could not even leave a message. She finally got her correct refund check of a few dollars plus a few cents interest - no explanation, nothing. It was probably one of the most frustrating experiences of my life. (my daughter was just 18 and had no idea how to deal with it, so I was trying to help sort it out for her).</p>
<p>We received a letter from the IRS 2 months ago about our 529 account. I did the same as goru. I showed proof that the account the money was transferred to is a joint account with the student, then transferred to NYU. I also backed up the legitimate expenses with bank statements and NYU e-receipts. I sent them my letter of explanation in mid July. Waiting to hear back. It was for 2009. I’m glad I had my paperwork, but it is still time-consuming to cull all the information and put it all together. I actually could not prove some of the expenses that my D used because of her lack of experience with record-keeping at school and I really never stressed the importance of it. It was really a very minor amount ~100.00. However, nerve-wracking to say the least. This year, it should be interesting, because I’m using the 529 acct to pay for her off campus apt. No receipt from NYU for housing. I have told her to write on the rent check “off campus housing.”. I hope that will suffice.</p>
<p>You people are scaring me! :eek:</p>
<p>I have withdrawn, like over $4000 at a time. For simple reasons: college bills over $4K were due. You know, at the beginning of each semester?</p>
<p>So far, no IRS questions.</p>
<p>And then, this summer, for the first time ever (because my son’s in his first apartment ever – which is a year-round thing, as opposed to a 10-month dorm thing), I withdrew his rent each month, and had it deposited into my account. From my account, it was withdrawn automatically each month to pay the realtor. As I understood it, his rent is a qualified expense. So, my expenses are legit, and in the case of the rent, trackable. But I was also planning on withdrawing money to my account for his grocery money each month. The reason it goes to my account is that I am the owner of the 529 plan, which is set up through my credit union, and my account is the only place where it can be deposited with a simple phone call. Otherwise, they cut a check and there is a 5-7 day delay in getting the money, and then the check would have to be deposited. I was trying to keep it simple.</p>
<p>I, too, had a frustrating experience with the IRS almost 2 decades ago. Something about my spouse’s disability payments. Can’t remember the details. I just remember the nightmare that swimcatsmom described. Nobody answering their phones. Threatening letters. Different IRS folks getting involved, so the story always changed. And finally, about 8 months later, they all agreed that we had filed and paid correctly. It wasn’t an audit or anything. It was just a hassle over something to do with disability. I don’t want to go there again.</p>
<p>Sheesh. I haven’t been an angel about documenting all of this stuff as I go along. I’ll start now, though! Just in case.</p>
<p>
When a student lives off campus, rent/utility bills/food are qualified expenses (for 529 account purposes) only up to the amount included for room and board in the school’s COA. (In most cases off campus living will be cheaper than on campus, so it probably is not an issue, but it is something to be aware of.)</p>