Question about 529

Parent Cafe
1

<p>Last year son lived in a dorm and had a mealplan, so withdrawing from 529 was very simple. This year he is living in a house, and will eat some meals at his fraternity, some meals at the campus dining halls (We'll put money into a declining balance account) and some meals he will prepare himself.</p>

<p>We're trying to figure out how to withdraw $ from 529. Would the easiest solution be to withdraw the same amount he would be spending on a dorm (using the same dorm he lived in his frosh year), and the entire amount of a all-you-can eat on campus dining plan- put the money into a bank account and withdraw as needed for rent and food?</p>

<p>Would that be allowed?</p>

<p>Or does he have to track expenditures (each meal, every grocery store receipt, each rent payment)? That seems ridiculously time consuming and improbable.</p>

2

<p>I’m under the impression that it is up to the 529 owner to be able to document to the IRS that all withdrawals were for qualified expenditures. The 529 plan doesn’t require proof (at least mine doesn’t). I just have to sign a box on the withdrawal request form stating that the funds are being used for a qualified educational expense. My withdrawal forms sats that the withdrawal cannot exceed the greater of a) The room and board allowance posted by the institution, or, b) if living in housing owned or operated by the eligible educational institution, the actual invoice amount charged for room and board.</p>

<p>So in your son’s case, I think it would be prudent to withdraw an amount equal to the greater of (a) or (b) above and then be prepared to document how it was spent if the IRS ever comes a-calling! Rent payments are easy enough to document (cancelled checks or rent receipts). It would be a little tougher to prove food expenses, but if he uses a debit card he could track grocery store and restaurant charges on his bank statement (or credit card statement if he uses a credit card to pay for them). If he pays cash it would be much more difficult. I wonder, though, whether the IRS would even question a withdrawal used for room and board, considering the fact that the amount of the withdrawal is limited to the amount charged by the institution as noted above.</p>

<p>Of course, I’m no tax pro so don’t be printing this post out to use as a defense at your tax audit :eek:</p>

3

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<p>This was our experience as well.</p>

<p>I think you will need a way to document what the money is spent on (rent, food, etc.)</p>

4

<p>The Missouri 529 plan which I use, requires that I keep my own documentation verifying “qualified withdrawals” in the event of a tax audit. The whole withdrawal process is very loose.</p>

<p>It would seem to me that you would have to have receipts verifying that the $$ covered an approved college expense, ie food. If your S pays for his food via the campus debit card, I would think the deposit receipt would suffice. I would think you also have a fraternity bill that shows meal charges. </p>

<p>From my queries before my first withdrawal 2+ years ago, the whole documentation thing is up to you. You would only need it if questioned about your taxes. Personally, I only withdraw for the items billed by the school directly, tuition, fees, room/board, and textbooks that my S has provided receipts.</p>

5

<p>It’s my understanding that the amount specified by the college in its cost of attendance estimate is a presumptively valid basis for withdrawing from a 529, and doesn’t require additional documentation. I don’t know where or how I got that impression, however.</p>

6

<p>Withdrawing the $ is a piece of cake. I’m concerned about what would be required in case of audit. True, the rent payments will be easy to document- cancelled checks. However, there’s no way that I can expect my son to save every single grocery store, pizza delivery, smoothie, fast food, etc. receipt. It just isn’t going to happen. That’s what I’m worried about.</p>

<p>So let’s assume we withdraw an amount equal to the “food plan”, deposit into his checking account, which he uses to live off of. If he doesn’t save his receipts, do we risk getting into big trouble with the IRS?</p>

7

<p>OH, thanks kluge, I double posted.</p>

8

<p>maybe he can use debit (or credit) card to pay for all his expenses. Then there will be a record without him collecting the receipts.</p>

<p>You do have to have documentation for the IRS.</p>

9

<p>I’m assuming then, if he uses his debit, that the IRS wouldn’t be discriminating as far as what the expenditures were for…for example, he goes to Publix and spends $50 on groceries per week. No one is going to question “what exactly did he purchase”? Same thing for restaurants? As long as the debit record shows purchases, it doesn’t matter whether he has the actual receipts?</p>

10

<p>I would check the specifics of your 529 withdrawal guidelines. I know I have seen mention of the “reasonable and expected room and board expenses” somewhere. You may be able to use the univ lowest meal plan cost as the food portion of your withdrawal.</p>

<p>Just curious, has anyone heard of or know anyone who has actually been audited and needed all the documentation for a 529 withdrawal? Just how picky is the IRS??</p>

11

<p>Besides tuition, room and board what is allowed under 529 rules? I can look it up but y’all seem to be well informed so I’m being lazy!</p>

12

<p>We didn’t get audited, but we did receive a notice of tax due on the proceeds from the 529. We sent back a copy of the school bill (indicating it was paid), and a copy of the 529 statement showing a withdrawal in exactly that amount, and a copy of the check cut from the 529, and that was acceptable documentation.</p>

13

<p>My father-in-law and I recently puzzled over this for my nephew, who is moving into an apartment this year. Here’s the IRS link: </p>

<p><a href=“Publication 970 (2024), Tax Benefits for Education | Internal Revenue Service”>Publication 970 (2024), Tax Benefits for Education | Internal Revenue Service;

<p>Here’s what the IRS says (in part):</p>

<p>"Qualified education expenses. These expenses are the tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution (defined in the next column). </p>

<p>They also include the reasonable costs of room and board for a designated beneficiary who is at least a half-time student. The cost of 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>You will need to contact the eligible educational institution for qualified room and board costs."</p>

<p>My nephew’s college posts the cost of attendance on their website, making it easy. My father-in-law will pay tuition directly to the school, and he’s going to pay my nephew a monthly allowance based on the room and board part of the cost of attendance. For books and supplies, my nephew saves his receipts, then mails them to Grandpa, who sends him a reimbursement check.</p>

<p>Do you notice that when you surf the web you find sites galore that tell you how to save for college but almost nothing about how you actually pay the bills?</p>