<p>We have a little less in son's 529 account to pay for Fall and Spring semester's billed expenses. DH wants to now make monthly payments from his check directly into the 529 account to save for 2014-15 charges. </p>
<p>Isn't the amount in a 529 viewed exactly like a parent asset so what is the benefit of doing this? Doesn't the amount in the 529 count toward the parent's asset protection allowance exactly the same as if it was in a savings account? Is this a good thing to do?</p>
<p>Are there any other hints and tips for using the 529 funds? I know we need to take out exactly what we pay to the school in the calendar, not academic, year we pay it and that's about it. I also know that the 529 can only be used for things like tuition, room and board and books, not travel, right?</p>
<p>Thanks in advance for your replies!</p>
<p>You are right regarding how the asset is counted for asset protection. However, the benefit of 529 is that the earnings are tax free (if funds are used for qualified expenses).</p>
<p>Thanks for your post, lerkin. I understand it now, the whole point of the 529 is for tax purposes. So in the end, it’s a good thing to do. Thanks again!</p>
<p>Wait, I just read that I would have to pay at least $4000 NOT from a 529 account to get the tax credit of $2500 so that is a concern just in case anyone else searches for help (and your income is <$90K). So I have to calculate how much to put in the 529 vs. how much to just put in regular savings. </p>
<p>I also have to figure out how much son will be taxed on scholarship and grant money so it’s all confusing now but at least I am thinking ahead. I guess the best thing to do to figure it all out is to do “mock” tax returns to see which way is best? I see that some of you just put the child on your return and some find it more beneficial to have the child do his own return? I take his grants and scholarship and subtract tuition, fees and books and what’s left over is taxable but if it’s less than 5950, he owes nothing? This is helpful to figure out ahead of time so we can have an idea of what taxes he might owe and how best to use the 529 funds and still be able to claim the tax credit.</p>
<p>This is HARD stuff=lol! I’ll keep reading…</p>
<p>I don’t see the advantage either, as all non-retirement assets are lumped together. </p>
<p>I don’t have any tips other that that I always pay enough myself (non-529) to get the AOC.</p>
<p>Here’s the IRS on qualified educational expenses:</p>
<p>[Publication</a> 970 (2012), Tax Benefits for Education](<a href=“Publication 970 (2022), Tax Benefits for Education | Internal Revenue Service”>Publication 970 (2022), Tax Benefits for Education | Internal Revenue Service)</p>
<p>x-posted w/OP</p>
<p>Taxable scholarships/grants are considered earned income by the IRS. A parent CANNOT include a child’s earned income on the parent return. Anyone who does so is doing it incorrectly. The child must file their own return.</p>
<p>If there is enough scholarships/grants to be taxable, then there won’t be any amount to use for the AOC unless some of the scholarships/grants are applied to non QEE and the child reports that amount as income on their return.</p>
<p>Amounts paid from 529 funds can be used for the AOC if the child reports the earnings portion of the distribution as taxable income on their return.</p>
<p>College spending funded through student loans can count towards the federal income tax credit.</p>
<p>Some states provide state income tax deductions for contributions to 529 accounts. Some states only offer the benefit for plans in their own state, while some allow the deduction for any state’s plan (which is beneficial to find lower fees). PA. also doesn’t limit the time that money must be kept in a 529 to get the state tax benefit, so a parent can put the money into the account in June and take it out in August to pay tuition and still get the tax break.</p>
<p>My state of Pa. also treats money in a PA. 529 very favorably when considering eligibility for PA. State Grants to students. Those state grants are available to many more families than Federal Pells.</p>
<p>Also, PA.'s 529 program can be linked to the Sage program, which offers large tuition discounts at hundreds of private colleges and universities. The more you save in a 529, for the longer period of time, the bigger tuition discount you can receive, which can be up to $20,000 over 4 years.</p>
<p>Good point, I forgot about the state tax advantages.</p>
<p>Thank you all for your posts! This is really very difficult to figure out. For this tax year, son will receive $30,850 in grants and scholarships for Fall 2013. Our billed amount is less than $3000 for fall so we won’t be able to take any tax credit this year since I read that we’d have to pay at least $4000. Is this correct? He has no loans.</p>
<p>We don’t get any state tax break on the 529 because our 529 is in another state. The little bit of interest earned on the 529 doesn’t seem worth it to me to tie up the funds in that account. Seems to me that I should stop the monthly contribution to the 529? Just put it in a savings account since there is really no big “interest earned” on the 529 with such little money in it anyway. Right?</p>
<p>Annoyingdad, I guess a lot of people are doing it incorrectly because I’ve read a number of posts about deciding whether to include the income on the parents tax form or have the child do their own. It’s good to know that he MUST do his own return. Thank you for the information. How do we know if he actually has to do a return? Do I subtract the room and board amount from his grant and that’s what he has to pay taxes on? Or do I subtract what we pay from the room and board charge and subtract the book expenses and what’s left over is what he pays taxes on? In that case, it would be under the $5950 so he would pay NO taxes? Yikes- do I need an accountant?</p>
<p>Thanks again for all of your help!</p>
<p>This is confusing to me. Since I paid taxes on the money when I made the deposit into the 529 I don’t see the tax savings. In my state of IN we can get a tax refund of up to $1,000 (if $5k is put in), however that $1,000 becomes taxable on next years return. How do I maximize getting the $2,500 credit and also the 529 funds. We make above $90k.</p>
<p>The American Opportunity Credit could still apply to you. $4000 is the maximum amount of expenses that one needs to incur to be able to receive the full $2500 tax credit. But if you only have $3000 in eligible expenses (for example), you will still be able to receive a partial tax credit.</p>
<p>If I understand it correctly, you can get the tax benefit of the American Opportunity Credit on money paid for tuition and qualified expenses if they are required by the university to attend the university (fees, maybe books etc.) You cannot get “credit” for money paid for room and board or unqualified expenses. The OP says her student is getting $30,850 in scholarships and grants and will only have to pay $3000 for fall (maybe $6000 for the year). I’m guessing that the money she has to pay is for room and/or board, which she cannot use for the AOC. Of course an accountant might be able to still get the AOC for this family IF the scholarships/grants can be used for other things besides tuition and it can be shown that the $3,000/$6,000 was a tuition expense.</p>
<p>OP, I know this is confusing so its great you are trying to figure it out ahead of time (I know I am still trying to.) Don’t forget that your student will have to pay a yearly tax on the scholarship above tuition/qualified expenses. Son #2 received full tuition, $2500 scholarshp, an IPad and room last year. He had to fill out a federal and state form and had to pay taxes on the cost of the room, ipad and the $2500. I forget what we paid, but I think together it was around $1000 (our state was more than our federal.)</p>
<p>^^^^I forgot to add that when you pay taxes on the non-tuition portion of the scholarship/money received, your student would pay the percentage of the amount “above” the personal exemption that is allowed so the tax liability is not on the entire amount.</p>
<p>So can you pay room & board with the 529 and tuition with checking account to get credit for AOC.</p>
<p>Yes, October.</p>
<p>529 funds can be used for tuition, mandatory fees, room, board and books. Travel is not eligible. The funds can also be used for mandatory supplies. Computers and software used to be eligible, but that provision expired, unless they are specifically required for your academic program.</p>
<p>Fido, you are asking great questions. I would not put any more into the 529 at this point. And you might consider placing at least a portion of your 529 funds into the most conservative or fixed allocation. You could leave a portion to continue growing for a couple more years to fund the last semesters. This is possible even if you are in an age-based allocation - just call and ask.</p>
<p>Regarding using 529 funds for computers, the Q & A page on the IRS website states that computers are eligible, but it also refers to the old dates. The page was updated in 2/2013 so it should be accurate. Does anybody have a good resource on the computer policy for 2013?</p>
<p>[529</a> Plans: Questions and Answers](<a href=“http://www.irs.gov/uac/529-Plans:-Questions-and-Answers]529”>http://www.irs.gov/uac/529-Plans:-Questions-and-Answers)</p>
<p>Yes, I’ve been trying to research whether computers and software are eligible for 529. The current policy is they are only an authorized 529 expense if they are a specifically officially required as part of a student’s academic program. Usually they are just strongly recommended, not required, except in some technical fields. They were authorized expenses for all students for a couple years circa 2011, but then that provision expired. </p>
<p>US News recently had an article on their website that they are eligible again, but no other source has confirmed that change, so I think they are wrong. </p>
<p>A bill has been introduced in Congress to make them eligible again, but it is not moving in our wonderful gridlocked Congress.</p>
<p>So dd’s college posted our payment from our 529 plan as prepaid college tuition payment. Is this going to mess us up at tax time as we are paying room & board with 529 funds and tuition with checks?? It is not a prepaid tuition account, but rather a regular 529 account.</p>
<p>No, just keep good records of the distribution and bills. You will get a 1099Q in January that will show it’s a 529 distribution. If you have the cash flow we’ve always paid the bills up front and then have gotten reimbursed from the 529 rather than have it sent directly to the school. You just have to make sure to get reimbursed in the same year as the expenses and for the right amount.</p>