The description of Qualified Education Expenses that may be paid using “529 dollars” in Chapter 7 - Qualified Tuition Programs of IRS Publication 970 - Tax Benefits for Education does not help me understand which of the following items on my daughter’s student account at Duke can be paid by her 529 plan.
Can anyone tell me if charges such as those listed below can be paid by her 529 plan?
Thanks!
TP
Summer Fuqua MQM Tuition $25,167.00
Summer Fuqua MQM Technology Fee $1,000.00
Summer Transcript Fee G&P $120.00
Summer Health Fee $151.00
Fall Fuqua MQM Tuition $25,167.00
Fall Health Fee $449.50
Fall Insurance $3,375.00
Fall Recreation Fee $170.75
Fall Graduate Student Activity Fee $18.25
Fall Grad & Prof. Student Services $11.00
Fall Business Admin Govt Dues (MQM) $450.00
Assuming that the fees for activity and recreation etc are mandatory then it’s likely that all can be paid from the 529 with the exception of the health fee and insurance (I assume these both relate to health insurance coverage - you should check if you need this since it shouldn’t be mandatory - though maybe the health fee refers to something else, like a fee to cover the student health center costs).
I’m currently paying undergrad tuition at Duke for two students using a 529 plan so some of this is familiar. The only nonqualified charge that pops out on this list would be the Fall Insurance ($3375). Note also that if your student is covered by your insurance policy and Duke considers that policy adequate, you should be able to get this charge waived by submitting information through DukeHub – at least it works that way for undergrads.
The “Health Fee” however is a mandatory fee charged to all students to support Duke’s general health and wellness initiatives and would be a qualified expenditure from a 529. More info here, website is a good resource for 529 information: Can You Use a 529 Plan to Pay for Health Insurance?
The health fee charges and the insurance are definitely not 529 qualified expenses. For some of the other charges, more information is required before a reasonable determination can be made.
Do you have a source for your claim about the health fee?
If required for attendance and enrollment, which is the key test for fees, it would seem to be a qualified expense.
Health insurance is typically viewed as not a qualified expense. The rest of those fees, if required for attendance, would be qualified. I’ve heard people question the health fee but every CPA I’ve asked has said it’s qualified if required of everyone for attendance.
Here is the relevant text from pub 970 (ETA: can’t get the proper formatting to copy but the text is a copy and paste):
The following expenses must be required for enrollment or attendance of a designated beneficiary at an eligible postsecondary school.
A. Tuition and fees.
B. Books, supplies, and equipment.
Pub 970 directly addresses mandatory student health fees on page 17, saying they are not QEE:
Expenses That Don’t Qualify
Qualified education expenses don’t include amounts paid for:
• Insurance;
• Medical expenses (including student health fees);
• Room and board;
• Transportation; or
• Similar personal, living, or family expenses.
This is true even if the amount must be paid to the institution as a condition of enrollment or attendance.
That section isn’t relevant to 529 plans. Elsewhere in Pub 970 (second column of page 59 and the top of page 60):
“3. Expenses for room and board must be incurred by students who are enrolled at least half-time (defined later). The expense for room and board qualifies only to the extent that it isn’t more than the greater of the following two amounts. Chapter 8 Qualified Tuition Program (QTP) The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. a. The allowance for room and board, as determined by the school, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student.”
Ran into this with my daughter’s school because what they report to the IRS is not based on 529 rules.
Not all fees that are “required for attendance or enrollment” are qualified education expenses. For example, from the IRS regarding education credits and deductions:
Expenses that Do Not Qualify
Even if you pay the following expenses to enroll or attend the school, the following are not qualified education expenses:
- Room and board - Insurance - Medical expenses (including student health fees) - Transportation - Similar personal, living or family expenses
Unfortunately, IRS regulations regarding 529 programs have not been forthcoming. Publishing such regulations would clear up a lot of questions and confusion about 529s.
The language above says that room and board is not a qualified expense for tax credits and deductions, but we know that this does not apply to 529 programs, because the statutory language specifically says that for 529s, room and board is a QEE for students enrolled at least half-time. There is no statutory language in Title 26 Section 529 that says student health fees are a QEE. In this instance, we should fall back to other IRS definitions of QEE, which in all cases (at least that I am aware of) state that a student health fee is not a QEE, even if the fee is required for enrollment or attendance.
In other words, the 529 definition of Qualified Education Expenses should follow the QEE definition used by the IRS for other tax incentives, unless there is a specific exception for 529s (like room and board).
Unless there’s language indicating that QEE definitions for the purposes of the AOTC shape QEE definitions for the purposes of QTP withdrawals it’s incorrect to assume a connection.
The IRS could make the connection you’re suggesting if there were a basis to do so but they don’t. Instead, they outline distinct definitions of QEE for 8 different tax credits/situations. I’d take them at their word.
I don’t know what my conscience has to do with this but I’m very comfortable with it.
Trying to keep the tone productive…
Look, the section of the tax code relating to education tax credits such as the AOTC specifically excludes non academic fees from “qualified tuition and related expenses.” The section describing “qualifying education expenses” for the purposes of QTPs does not.
They are different things. That is why they are described differently in pub 970 and why health fees are called out as excluded for the purposes of the AOTC.
Given the different legislative history and language used in the tax code, it’s simply incorrect to conflate the two categories.
Now, if you have case law or an IRS statement to support your position I’d love to read it. (Truly, I would find it interesting, which is why I asked in the first place).
In the meantime I’ll go with what CPAs I trust—and who are scrupulous about not stepping over the line— have told me.
The specific exclusion of non-academic fees from QEE is broader than just the AOTC. See the link I provided above.
Pub 970 is an IRS primer for education tax benefits. It is not authoritative and is written in fairly basic language (by IRS standards). Again, the specific exclusion of non-academic fees from QEE is broader than just the AOTC. See the link I provided above.
As I previously stated, QEE has a common definition that has been modified in certain instances for different education tax benefits. For example, room and board is a QEE for QTPs, as permitted by statute, but not for other education tax benefits.
I no longer have the capability to efficiently research case law, and the IRS has been delinquent in promulgating regulations for 529 plans, so I guess you and I will need to rely on our own intuition, prior experiences and what we know about how the IRS has handled similar situations.
Without IRS regulations and authoritative interpretations of section 529, CPAs are just as clueless as the rest of us about this stuff. I think it’s pretty clear where the line should be, so I choose to stay on the safe side of where I perceive that line to be. In the end, that’s also been an easy financial decision for me to make, as the difference between using 529 funds or paying out of pocket for student health fees has been inconsequential.
I don’t think we’re going to agree and I think we’re both fine with that.
I’d just point out for others who want to research this on their own that the link you’ve provided applies specifically to education credits NOT to 529/QTPs.
As much as it might seem like there should be, there is not a common definition of qualified education expenses that applies to both education credits and 529s. This is apparent both in the tax code and pub 970 and has been a known issue for a long time. The reasonable conclusion to draw is that the text means what it says.
Yes, I agree, and my intent in quoting from the linked material was to show that the exclusion from QEE of student health fees applies to both the AOTC and the LLC, even if the fees are required by the school for a student’s attendance or enrollment. Pub 970 doesn’t say this for the LLC, but the IRS regulations do.
In the scheme of things, the text in Pub 970 is not authoritative, and since the IRS has not promulgated regulations on QTPs, we are left to our own devices to figure out how to treat student health fees when using 529 funds. The IRS has provided regulations for education tax credits that state in part “Qualified tuition and related expenses do not include the costs of room and board, insurance, medical expenses (including student health fees)…” My choice is to use this regulation to help fill in the hole left by the IRS as to how student health fees should be handled when paying expenses using a 529 account. Section 529 of the code states that room and board is treated differently with QTPs than it is with the education tax credits, but it says nothing about a student health fee being treated differently than the fee is with the education tax credits.
I think where we agree is that you are choosing to use one section of the tax code to fill what you see as a “hole” in another section. Hopefully I’m not misrepresenting you on that.
What I’m saying is there isn’t a hole to start with.
People can judge for themselves.
Here is the section of the tax code describing the AOTC and related credits:
And here is the section describing 529/QTPs:
Note that the first of those uses the term “qualified tuition and related expenses” and specifically excludes non-academic fees. That is the meaning that applies for education credits.
The second uses the term “qualified higher education expenses” and does not exclude any fees. That is the meaning that applies for QTP qualified withdrawals.
So I think it’s pretty simple: follow the rules for education credits when you’re claiming one; follow the rules for QTPs when you’re distributing from one.
There’s only conflict or ambiguity if one assumes the rules should be the same. But they aren’t the same and weren’t ever intended to be.
Anyway, that’s my view. Apologies for the wordiness and thanks for the frank and thoughtful exchange.
Under this logic, any fee required for attendance or enrollment is considered a QEE for 529 purposes. Fees imposed by a school for health insurance, athletic events, transportation, student activity fees that support non-academic activities, etc., are all QEE for 529 distributions. Mandatory fees that provide tickets for students to attend college athletic events and mandatory fees that support student groups interested in things such as Dungeons and Dragons or hiking would be 529 QEE. Is this a correct interpretation of what you have stated?
OP, I approach 529 payments as if I’m looking to gain the AOTC each year (whether or not I’m eligible). I pay at least $2-4K each year from regular funds and the rest through 529 funds. This way, I’ve covered technology fees, orientation fees, etc. with the regular funds and the tuition, room and board is covered by 529 funds.