I have a upromise 529 account for my son with about $4500 in it. My son was lucky enough to receive the Evans Scholarship to Marquette which covers full tuition, housing and fees. I want to use the account to pay the nearly $4000 meal plan and for books. How can I do this if you can only withdraw the max needed minus $4000? Also his father has 529 account with about $10k in it. How do I best use these without getting penalized? Thank you!
Books and meal plans are both 529 allowable expenses, so you can withdraw using the forms provided by your administrator.
dumb question is the administrator someone at the college?
Also what else is included? My son will need to pay security deposit for Evan scholar house. Does anyone know the answers to the yearly limitations?
We have a similar issue with kids on full merit scholarships and money sitting in 529 accounts. We were not able to get any money out of the 529 accounts until they moved off-campus because everything was paid for from scholarships. Once they moved off campus, the university refunded to them the amount of scholarships not used. My kids then paid rent for their apartments and we were able to take the rental amount out of the 529. Don’t forget you can transfer to another person as well, so if you have other children, the money can be moved to a 529 for them. What we have decided is to take out what we can, then leave the rest in the 529 accounts in case any of them decide to go to grad school and, if not, then they can either take the money out and pay the penalty themselves or keep the 529 accounts for their future children. The 529s seemed like a good idea at the time because it never occurred to us that they would get such nice scholarships when they did not qualify for any need based aid.
I think I understand - you want to pay $4000 out of pocket in order to claim the $2500 tax credit? You know you can only pay $2000 out of pocket and get the full $2000 tax credit if you want? It may not be worth it in your case to pay the extra $2000 for the $500 more. You could use the 529 funds instead.
The other thing he can do - since he has scholarships - is to withdraw any amount up to the scholarship amount without paying a penalty, but he will have to pay tax, at his rate, on the earnings portion of that withdrawal. The portion of the scholarship that covers housing will also be taxable to him though, so that may add up to more income than he wants to pay taxes on.
The administrator is the company (such as Upromise) who holds the 529 plan.
Mamabear I don’t understand about the tax credit? Can you explain further?