Which of the following university charges can be paid using 529 dollars?

Paying for College
21

So in your view a mandatory “athletic fee” for students that fully or partially covers the cost of tickets to athletic events is a 529 QEE? Same question for a mandatory “recreation fee” that supports student recreational (non-education) activities, or a mandatory “transportation fee” that covers public transportation around campus, in the local community or to and from the nearest airport. I’m not making these fees up; a quick Google search can find these and a wide range of other mandatory fees at many schools, particularly public institutions.

If a student doesn’t carry the necessary health insurance, as determined by the college, and the school levies a mandatory “health insurance fee,” (labeled that way, hence the quotes), is that a 529 QEE? If not, where is the IRS language for QTPs saying that mandatory health insurance costs aren’t viewed as fees, regardless of the term used by the school, and the mandatory expense is therefore not considered a 529 QEE?

22

I think you’ve misunderstood my intent. I’m not eligible for the AOTC nor am I trying to scam the IRS. My intent was to say if you pay a few thousand a year out of regular funds and the rest out of 529 money, you shouldn’t run afoul of violating the 529 rules. Most fees don’t exceed a few thousand dollars so the 529 $ goes to the allowable expenses.

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23

The fees you’re describing in your first paragraph are qualified higher education expenses for the purposes of QTP distributions if required for enrollment or attendance, yes.

Health insurance is not a QHEE because it cannot reasonably be considered part of tuition and fees even though it might be required. Vaccinations are required by some schools also, but are not QHEEs. Not everything required for attendance is a fee. I don’t think your hypothetical is very realistic.

I’m not sure why people would think it necessary to add restrictions to 529 use without basis.

24

Classifying expenses for athletic tickets and transportation (especially to and from the airport) as QEE goes against everything else where the IRS has made a ruling on these expenses. Personally, I don’t feel that they should be considered QEE for 529 distributions simply because the IRS has been slow (really slow) in drafting regulations.

Health insurance cannot reasonably be considered part of tuition and fees even though it might be required, while a mandatory student health fee that covers x number of visits to the student health center for physical therapy, mental health counseling or the treatment of minor injuries can reasonably be considered part of tuition and fees?

It’s completely realistic. The school decides what they label the charges they place on a student’s bill. Why not call every mandatory charge a “something fee,” if doing so will enable students to legitimately pay for the expense with 529 funds? If not the school, who or what determines whether or not a mandatory charge is properly classified as a “fee”?

Because the IRS is not the most efficient or sensical organization, and dealing with a notice from them is a PITA? Plus, as noted previously by me and one other poster, paying for these miscellaneous fees with non-529 funds should usually not be a huge financial sacrifice. A small price to pay to avoid what could be a major hassle.

25

First off, there’s little to no relationship between which expenses you decide to treat as qualified withdrawals and the risk of an IRS notice. They don’t know whether you withdrew the money for books, an expensive computer, or a tiny activity fee.

Second, I think it’s a good idea to file as if one might need to respond to such a notice. Keep good records. Have a good faith basis for what you are claiming. Follow the rules appropriate for the tax benefit you are claiming. That does not mean making up rules or imagining some sort of hierarchy of fees, some legitimate and some not, that contradicts actual IRS guidance. Remember that the IRS needs a basis for disallowing as well, and they don’t look to your imagination for that. They look at their own guidance.

Third, as to some of the fees you claim aren’t legitimate: I think you’re confusing two different things. Tickets to a football game and transportation to and from campus are not QHEEs, sure. But a required athletics fee that funds the athletic department (common at many non-P5 schools) and also provides free or discounted entry to students is. So is a required campus fee or transportation fee that funds a campus shuttle system which happens to include an airport stop (or, more commonly, free or discounted tickets on public transport). Again, rules for education credits are different.

Fourth, I sense, perhaps incorrectly, that you feel claiming some of these fees, beyond what is allowed for the AOTC, for example, somehow goes against the intent of QTPs or is some sort of inappropriate tax avoidance. I disagree with that. I think the text itself is enough to support my position. But ask yourself why, if the goal of these QTPs was to exclude some college expenses and not others (without saying so), the tax code would also allow one to repay college loans up to 10k (and another 10k for a sibling) from a QTP with no restriction at all on how that money was spent.

Fifth, to be clear: if it were up to me, QTPs would not be in the tax code and the savings would be used to expand Pell grants and education credits. But there they are, so I’m going to follow the appropriate rules when I use them.

Finally, hopefully the OP has enough info to contemplate the original question. I’m sure folks are sick of me posting by now so I’m going to go enjoy the rest of the weekend. Happy fourth to all.

26

  1. Distinctions: you have said that all mandatory fees are 529 QEE, but not mandatory health insurance even if the charge on the student’s bill is labeled as a fee. How is that distinction made?

  2. The IRS doesn’t initially know what 529 distributions are specifically used for, but it’s not out of the realm of possibility for a taxpayer to receive a bogus notice, and the taxpayer’s response will require a detailed explanation of how the distribution was used (ask me how I know this - after three months and correspondence back and forth, the IRS said, “ok, never mind”).

  3. I keep good records, I follow the rules as I understand them, and I am not making up rules or imagining some sort of hierarchy of fees. My experience is that while the IRS should have a plausible basis for disallowing, this is not always the reality (see above re: bogus notice).

  4. I’m not confusing anything. The legislative intent, with regulations yet to be promulgated, was to incentivize legitimate educational activities. Not athletics. Not a ride to the airport. Not health care for students.

  5. The loan repayment provision was a later add-on to the statute. I haven’t had a chance yet to ask the bill co-sponsors what their intent was.

27

That’s not accurate. The rules state:
“No more than $10,000 paid as principal or interest on qualified student loans of the designated beneficiary or the designated beneficiary’s sibling”.

And a qualified student loan is “a loan you took out solely to pay qualified education expenses”.

Which are “amounts paid for the following items.
• Tuition and fees.
• Room and board.
• Books, supplies, and equipment.
• Other necessary expenses (such as transportation)”.

Now I agree that this is broader than the 529 expenses since it specifically includes transportation (and presumably all mandatory fees since those are “necessary”), but it’s not true to say there are “no restrictions at all”.

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28

Folks:
If you find yourself directly addressing one user more than once, it’s time to move on. As per Forum Rules, debate is not allowed.

Don’t call out individuals by name in attempts to provoke response or debate. I am putting this on slow mode. Thanks for your cooperation.

1 Like
29

Yes, thanks for the correction. My wording was very sloppy and you captured my meaning better than my words did. I was thinking no restrictions within the context of COA at school but what I wrote sounds like a jet ski would be fair game.

30

I have an undergraduate in Duke and have received 1099T form from the school before. If assuming that 1099T specified the tuition and fees, the following items adds up equal to the amount reported in the 1099T:
tuition
student activity fee
student service fee
The reset are not in 1099T, so they may not qualify for tax free 529 withdraw.

31

@Fred2003

Just be aware…you need to keep track of your QEE yourself. Your 1099 from the college can be less than accurate sometimes.

32

The 1098T is for reporting by eligible educational institutions of qualified tuition and related expenses (QTREs) for the purposes of education credits. Reporting requirements do not align with qualified higher education expenses for the purposes of QTPs (529s).

That information definitely will be very helpful for those calculating eligibility for education tax credits.