<p>My son, a senior in college, will be heading straight into a fully funded PhD program next fall. By fully funded I mean he has a tuition scholarship that covers the complete cost of tuition, and a teaching assistanceship which will pay him approximately $2,000/month.</p>
<p>Through some miracle we still have some money in his 529 plan, and are trying to figure out what we can use this for without penalty once he's in graduate school. Obviously he won't have tuition expenses, but he will have to pay out of pocket for books,housing and other living expenses. He plans to live off campus, and is currently apartment hunting. </p>
<p>My question is can we transfer the 529 to him and have him use those 529 funds to help offset his living expenses without creating a taxable event? For example he will have to come up with first/last/deposit for his apartment. The $2k/month from the TA, ostensibly to be used for his living expenses, is taxable income from a job as far as I can see. I've seen plenty of people say "use the remainder of your 529 for graduate school" but I can't seem to find anything that shows me how to determine qualified expenses in a fully funded program.</p>
<p>Room and board, up to the amount established by the school, is okay to pay from 529 money for undergrads, so see if it is for grad school. Also books. There is an exception for withdrawing the 529 if the student has a full scholarship, so you might see if your son’s situation qualifies.</p>
<p>The exception for scholarship means no penalty, but income tax on gains would still apply. But, as twoin says, room and board up to the amount included in the COA is a qualified expense for 529 purposes. </p>
<p>IRS 970 states pretty clearly what is a qualified education expense for the various education tax benefits…</p>
<p>Room and board used by the school for the particular living arrangement of the student(off-campus living for example).</p>
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<p>Page 56:</p>
<p><a href=“http://www.irs.gov/pub/irs-pdf/p970.pdf”>http://www.irs.gov/pub/irs-pdf/p970.pdf</a></p>
<p>Right - I understand what the IRS says are qualified expenses regarding room and board. What I don’t see anywhere is if the assistanceship, and the paycheck it brings that is meant to cover his living costs, affects that eligibility at all. If it doesn’t then all is good, we can simply use the excess 529 funds to supplement his income for the next few years. If not things are a lot more complicated.</p>
<p>Also, he will no longer be our dependent. Is it advantageous in any way to continue to hold onto the purse strings of the 529, or is it better for us to transfer ownership and control to him?</p>
<p>From page 57 of Pub 970 under adjusted qualified education expenses, the basic tenet is you have to reduce QEE by tax-free educational assistance. If he will be required to pay taxes on the paychecks then it isn’t tax-free assistance. You could contact the school and see how the assistantship will be reported, on a W-2, 1099 or whatever.</p>
<p>I don’t know if you can or what the ramifications would be of making him the owner. You could contact the plan administrator to find out. I don’t see any reason to transfer ownership but maybe someone else will have a more informed opinion. While you have ownership the beneficiary could be changed to a sibling if that works out better overall.</p>
<p>A few alternatives:
Leave the money alone and let it grow so that it can be used for next generation.
Use the money for another family member’s education, any one even the parents.</p>
<p>Thanks Annoyingdad, that’s what I needed to know - I’ll have him call the school and find out how they will report his income. Txhandan, even though the money is in his parent’s name the source of the funding for it was gifts from his grandparents specifically earmarked for his education, so we consider the money “his” not ours. We allocated those funds towards his education by basically dividing the account into 4ths to contribute, along with other sources of funding, to his 4 years of undergraduate education. Due to the stock market rebound the gamble of keeping it in a growth fund paid off. He’s our younger child, our previous student drained her account and then some. I like the idea of looking at his 4-5 years of graduate education and splitting it into a monthly allowance to supplement his stipend, keeping whatever remains in a growth fund and making sure it’s all gone before he finishes his dissertation - just want to make sure we aren’t creating any taxable events by handling it that way.</p>
<p>^^ Leaving the money for your son’s children is still an option 
With 20+ years compounding growth, it should be a good size by then.</p>