It’s very complicated with the stipends. The tax form the University sends will show the amount reduced by the stipend. It is probably less expensive for your student to just pay taxes on the stipend amount you end up using for non-QEE expenses and then if you get audited you will be fine. Assuming you can’t use the 529 funds for a sibling which would be much less complicated. We have a stipend situation and excess 529 funds so we have been dealing with this as well. Even good professional financial and tax advisors have not felt totally confident about their answers to our questions. They have just told us to account for every single penny every year with receipts and proof of taxes paid for the excess stipend. The worst other penalty to be incurred if we were audited and found in the wrong would be the 10% 529 withdrawal penalty because there would be sufficient proof that the situation wasn’t fraudulent.
My DS has same scholarship (although an earlier more generous version) at UA as well as an engineering stipend. He gets a refund close to $2k last few semesters (each semester). The university has already paid everything on your bill to include room and board, fees, parking pass, football tickets, meal plan, etc all were covered by university. We used the overage for books and still had leftover. I’m probably not the best person to ask as I withdrew a little too much from the 529 last year when DS was off campus… according to our accountant. At tax time you’ll get a form from the school but of course too late to withdraw from 529 to make sure everything matches. This year should be easier since he’s on campus again so not pulling anything from 529. Wish I could explain it better!
Omigosh, thank you @ccccguideg and @Rdtsmith and others. So complicated! I will print out this thread and try to follow your advice and sounds like might also need to double-check with accountant that we’ve got it down!
It is indeed very complicated and I did learn a lot from this forum. My D just got a refund from school after the scholarships and grant paid off all the tuition and fees. I applied (just on my own record) the surplus on part of the R&B equivalent (as she lives in an apartment) and the rest by 529. Then I pay for the books out of pocket so that I can claim the tax credit. I actually told my D today that she may use as much as the $2000 credit on textbooks instead of looking for used books or international editions to save money this year.
We just divided the 529 money into four…and had the 529 people write the college a check each year. After grants, scholarships, loans, etc…sometimes there’s money left over, sometimes not. If there is, the college gives my kiddo a refund. She pays her off campus rent and eats with it. The paper trail has it going straight to the college, though…which I like. Truthfully? This whole tax nightmare around college? I kinda wing it and hope to God it’s close to right, and if it isn’t, that no one notices. I’ve been honest, and I’ve tried to do it right…beyond that, I’m not losing sleep over it. That said, I’ll breath a sigh of relief 3 tax years after graduation when most risk of audit is gone. LOL
But if the refund is thousands of dollars over the school billed amount, you may still have taken too much in 529 withdrawal or still owe taxes on scholarship amounts.
Yup. Just winging it is a recipe for trouble.
Make sure you move the numbers around on a spreadsheet to make sure you have all qualified education expenses cover properly. If the refund amount is less than the R&B amount (which is is not on your kid’s school bill), it should be fine. But I would not go through the trouble and get the refund from school. Just pay the school and withdraw the amount of QEE you need from 529 to yourself. For me, it takes 1-2 weeks to get the money from 529 to deposit into the school account which sometimes cause trouble.