<p>Title says it all - we have a senior in college who wishes to go straight to grad school, and we still have money in his 529 plan. Can we use those funds to pay for his application fees, or do they have be used for actual direct education expenses?</p>
<p>Chapter 8 lists the qualified education expenses for 529 distributions:</p>
<p><a href=“http://www.irs.gov/pub/irs-pdf/p970.pdf[/url]”>http://www.irs.gov/pub/irs-pdf/p970.pdf</a></p>
<p>The QEEs allowed are for enrollment and attendance, not application to a college/university.</p>
<p>Sure, you can use the funds to pay for grad school application fees, but since that isn’t a qualified education expense, you’ll pay income tax plus a 10% penalty on the earnings portion of the distribution.</p>
<p>529 funds can be used for grad school tuition, books, room, and board. Upfront the money for the application fees, and then use the account funds for everything else.</p>
<p>So basically, you can just use the leftover money to pay for housing in grad school even if you have a tuition waiver and stipend?</p>
<p>So basically, you can just use the leftover money to pay for housing in grad school even if you have a tuition waiver and stipend?</p>
<p>Yes, as long as the student is enrolled at least half-time at an eligible educational institution and the amount claimed as a qualified expense is not more than the allowance for room and board (as determined by the school) or the actual amount charged if the student is living in housing owned or operated by the school. I would think that a stipend would reduce the housing expense, so the qualified expense would be the difference (if any) between the housing cost as described above and the amount of the stipend.</p>
<p>I’m not a tax expert but I don’t see that the stipend would reduce the amount of housing/board costs that could be paid with a 529 distribution. I think the stipend funds could be allocated to other costs or saved because the stipend is likely reportable taxable income as it is in exchange for services provided, TA/RA etc., and will likely be reported on a W-2. The limits that MiddKid86 stated are applicable though and straight out of pub 970. You may want to do more research or consult a tax advisor.</p>
<p>Thanks for the answers (and btw I know it’s a 529 plan, hate how you can’t go back and edit posts for typos on this board). Obviously if we can’t use the money directly to pay the application fees we will just apply it to other qualified expenses, just trying to budget cash flow accordingly.</p>
<p>I’m not a tax expert but I don’t see that the stipend would reduce the amount of housing/board costs that could be paid with a 529 distribution. I think the stipend funds could be allocated to other costs or saved because the stipend is likely reportable taxable income as it is in exchange for services provided, TA/RA etc., and will likely be reported on a W-2. The limits that MiddKid86 stated are applicable though and straight out of pub 970. You may want to do more research or consult a tax advisor.</p>
<p>I guess it depends what the “stipend” is supposed to be for. If it is more like wages for TA/DA duties and is reported on a W-2, then it wouldn’t be proper to use it to offset housing costs when figuring qualified expenses. On the other hand, if the “stipend” is specifically meant to defray living expenses (room and board), that’s a different matter.</p>
<p>Do graduate schools give a number for a room and board allowance? I’ve only heard of undergrad schools giving that info for cost estimates.</p>
<p>Do graduate schools give a number for a room and board allowance? I’ve only heard of undergrad schools giving that info for cost estimates.</p>
<p>Yes, for federal financial aid purposes a Cost of Attendance (COA) figure will be provided that includes room and board.</p>
<p>Foe example, here’s USC’s pamphlet about paying for graduate school:</p>
<p><a href=“http://www.usc.edu/admission/fa/private/docs/1213/PayforGrad2012.pdf[/url]”>http://www.usc.edu/admission/fa/private/docs/1213/PayforGrad2012.pdf</a></p>