Message Font: Serif | Sans-Serif
 
No. of Recommendations: 4
Ask when ready! I'll give you the first couple that come to my mind.

1) But first, the necessary disclaimer: I'm not an expert; anything I say/write should not be considered advice; and I did not sleep at a Holiday Inn Express last night.

2) Okay, first, be sure to review IRS Publication 970 for the basics.

3) Know from the git-go that Form 1098-T is worthless. I would advise you to not even open it, but everyone is curious. So just be aware that when you get that first 1098-T, and you can't make sense of it, someone told you that would happen. I'm a pretty smart fellow and I like a challenge, and I couldn't even figure out what the schools were *attempting* to convey.

4) You do not, in any way, shape, or form, have to report your use of the 529 funds on your taxes or in any other way, to the Government. It's a completely honor-based system. Still, one should keep good records, as I assume the Government has the right to ask questions. Never happened to me.

5) Okay, on to the good stuff. Technically, (I believe) funds that are withdrawn or paid out must be used in the same calendar year as the withdrawal. This sounds simple enough, but what happens when you receive a Spring Semester tuition and fees invoice from the school on December 30th and pay it on January 3rd? Technically, that's a violation. Well, I did that pretty much every year and never gave it a second thought. The IRS fully understands this is an issue, and I didn't think it would be a problem. And for me, it wasn't. As persnickety as the IRS can be, it's hard to imagine they would ding someone over this. It's a well-known and understood issue, and certainly does not violate the spirit of the law.

6) Fees. When you get that first tuition and fees bill, there will/may be all kinds of fees on it. Library fee, sports fee, bus fee, etc, etc. Since these are charged by the school, and you have no choice but to pay these, they ARE considered valid expenses, and you should pay them right out of that 529 account, just like tuition.

7) Room and board. (I assume that) Nearly all students at four-year schools live on campus and eat at the school dining facility on the meal plan during their first year. That's fine, and there will be the applicable charges for room and board on your bill. Absolutely these are valid expenses and should be paid from the 529 account. But what happens 2nd (or 3rd or 4th) year when your child moves off-campus? Room and board are STILL valid expenses, but now with some conditions. Every school publishes a COA -- Cost of Attendance. The COA reflects what the school has found to be average living expenses for the school (and it gets adjusted every year). This will be your MAXIMUM amount that you can use 529 funds for, for room and board. So go ahead and pay that rent bill to the landlord, and reimburse yourself from the 529 account. But keep a running tab, and when/if the total rent for the school year reaches the maximum COA for rent, you'll have to cease and desist. (But it starts up again next school year.) Same for food. For food, your child will have to save up and present you with their receipts from the local grocery store. As with rent, for all valid expenses, you can reimburse yourself or your child from the 529 account, but only up to the maximum for food as defined in the COA.

8) But.... be alert that from time to time that grocery bill will also have things on it like shampoo, cleaning supplies, etc. Things that are NOT food. Technically, you must deduct these from the receipt, along with the concomitant taxes on those items. I *failed* to do so. (Please don't report me to the IRS!) My rationale was that surely my daughters had bought other food that they failed to report to me. For example, eating at a restaurant or that Starbucks they picked up. So - in my mind - it balanced out, and actually in the Government's favor. You'll have to deal with this as you see fit.

9) Here's a tip. And another reason NOT to plus up that 529 account. If you clearly don't have enough funds in the 529 account to last all four years, do a quick check and estimate just how much you WILL have; that is, add up an estimate for all tuition, fees, books (did I mention books?), room, and board over all four years. Let's say you're short by $10,000, which is not at all unlikely these days. Now subtract out off-campus food purchases from your amount. If you still don't have enough in the 529 account, WITHOUT counting off-campus food, then you needn't bother your son/daughter with keeping those receipts, and you don't have to go through the bother of adding them up, subtracting non-food items, and reimbursing yourself. Just ignore off-campus food, since you'll burn through all the 529 funds anyway. I learned this one a little late in the game )--;

10) About that COA... For one of my daughters, the school published specific amounts for tuition, fees, books, rent, food, etc. For the other daughter, the school broke out everything but lumped room and board (rent and food) together as one figure. So for the second daughter, I added up all rent and then only had to worry about a small amount of food. Just something to know.

11) Finally - books. Don't forget about amazon.com. They stock nearly all required books, and your son/daughter can have them shipped directly to their dorm or off-campus apartment. Very convenient, and provides you with documented evidence of what you paid for books. Without having to save receipts, if books are bought at the campus bookstore.

Okay, that should give you a good start and plenty to chew on!
Cheers!
Print the post Back To Top
No. of Recommendations: 2
Bruiser --

My two daughters finished up their college careers in '16 and '17, and for each we had two Fidelity 529 plans. I can't think of any reason to roll plans together. Simply draw from one (for each daughter) until all funds are depleted, and then begin drawing from the other. As the first nears $0, you'll likely end up making one tuition (or rent or books or food) payment by paying from both accounts, and that's fine. The school should accept the two payments just fine. Attempting to roll accounts together seems to me like asking for trouble.

I would *not* plus up the 529 accounts in advance, to cover future need. The *pro* of doing so is that the investment gains will not be taxed (assuming there are gains.) But you're only talking about gains over the next three or four years, so they may not be that great. More importantly, since you're within a few years of needing the funds, you'd likely not be investing the money in a high-growth kind of investment. So again, the gain is not likely to be large.

Also, you may need the money for some emergency between now and then; so better to have it available, rather than tied up in the 529.... just in case. And what happens if (G-d forbid!) your daughter drops out, or has some unfortunate event happen where you won't be using the 529 funds. In my opinion, these potential negatives outweigh the positive of a small amount of tax-free gains. Your mileage may vary.

I used Fidelity's Billpay service for five years and found it to be perfect. Not a hiccup or glitch anywhere. I set up each school as a Payee, as well as myself. I paid Tuition and Fees directly to the school(s), from Billpay, and reimbursed myself directly from Billpay for out-of-pocket expenses including books, rent, and food.

So yes, I found it to be very convenient. It also gives you a complete record of all funds you disburse from the 529 accounts.

If you have any questions at all about using a 529 account, I'm happy to answer them. There are definitely some confusing parts.

Good luck!
Print the post Back To Top
No. of Recommendations: 0

Also, you may need the money for some emergency between now and then; so better to have it available, rather than tied up in the 529.... just in case. And what happens if (G-d forbid!) your daughter drops out, or has some unfortunate event happen where you won't be using the 529 funds. In my opinion, these potential negatives outweigh the positive of a small amount of tax-free gains. Your mileage may vary.


Agreed!
Print the post Back To Top
No. of Recommendations: 0
Cheers,

Thanks for the response. I am not looking forward to the next few months as we go through the application and decision process.

I appreciate your point regarding the fact that putting any fresh money into the 529 at this point is probably more harmful than good. I just liked the idea of having all of the money in one place and being able to track the spending using the Billpay service. I think you are right having the flexibility of how that money gets spent outweighs any convenience or tax advantage at this point.

I will probably be asking questions regarding those confusing parts.

Fool on!
Bruiser
Community Ticker Guide for BUD and SAM
See my holdings here: http://my.fool.com/profile/CMFBaltoBruiser/info.aspx
Print the post Back To Top
No. of Recommendations: 4
Ask when ready! I'll give you the first couple that come to my mind.

1) But first, the necessary disclaimer: I'm not an expert; anything I say/write should not be considered advice; and I did not sleep at a Holiday Inn Express last night.

2) Okay, first, be sure to review IRS Publication 970 for the basics.

3) Know from the git-go that Form 1098-T is worthless. I would advise you to not even open it, but everyone is curious. So just be aware that when you get that first 1098-T, and you can't make sense of it, someone told you that would happen. I'm a pretty smart fellow and I like a challenge, and I couldn't even figure out what the schools were *attempting* to convey.

4) You do not, in any way, shape, or form, have to report your use of the 529 funds on your taxes or in any other way, to the Government. It's a completely honor-based system. Still, one should keep good records, as I assume the Government has the right to ask questions. Never happened to me.

5) Okay, on to the good stuff. Technically, (I believe) funds that are withdrawn or paid out must be used in the same calendar year as the withdrawal. This sounds simple enough, but what happens when you receive a Spring Semester tuition and fees invoice from the school on December 30th and pay it on January 3rd? Technically, that's a violation. Well, I did that pretty much every year and never gave it a second thought. The IRS fully understands this is an issue, and I didn't think it would be a problem. And for me, it wasn't. As persnickety as the IRS can be, it's hard to imagine they would ding someone over this. It's a well-known and understood issue, and certainly does not violate the spirit of the law.

6) Fees. When you get that first tuition and fees bill, there will/may be all kinds of fees on it. Library fee, sports fee, bus fee, etc, etc. Since these are charged by the school, and you have no choice but to pay these, they ARE considered valid expenses, and you should pay them right out of that 529 account, just like tuition.

7) Room and board. (I assume that) Nearly all students at four-year schools live on campus and eat at the school dining facility on the meal plan during their first year. That's fine, and there will be the applicable charges for room and board on your bill. Absolutely these are valid expenses and should be paid from the 529 account. But what happens 2nd (or 3rd or 4th) year when your child moves off-campus? Room and board are STILL valid expenses, but now with some conditions. Every school publishes a COA -- Cost of Attendance. The COA reflects what the school has found to be average living expenses for the school (and it gets adjusted every year). This will be your MAXIMUM amount that you can use 529 funds for, for room and board. So go ahead and pay that rent bill to the landlord, and reimburse yourself from the 529 account. But keep a running tab, and when/if the total rent for the school year reaches the maximum COA for rent, you'll have to cease and desist. (But it starts up again next school year.) Same for food. For food, your child will have to save up and present you with their receipts from the local grocery store. As with rent, for all valid expenses, you can reimburse yourself or your child from the 529 account, but only up to the maximum for food as defined in the COA.

8) But.... be alert that from time to time that grocery bill will also have things on it like shampoo, cleaning supplies, etc. Things that are NOT food. Technically, you must deduct these from the receipt, along with the concomitant taxes on those items. I *failed* to do so. (Please don't report me to the IRS!) My rationale was that surely my daughters had bought other food that they failed to report to me. For example, eating at a restaurant or that Starbucks they picked up. So - in my mind - it balanced out, and actually in the Government's favor. You'll have to deal with this as you see fit.

9) Here's a tip. And another reason NOT to plus up that 529 account. If you clearly don't have enough funds in the 529 account to last all four years, do a quick check and estimate just how much you WILL have; that is, add up an estimate for all tuition, fees, books (did I mention books?), room, and board over all four years. Let's say you're short by $10,000, which is not at all unlikely these days. Now subtract out off-campus food purchases from your amount. If you still don't have enough in the 529 account, WITHOUT counting off-campus food, then you needn't bother your son/daughter with keeping those receipts, and you don't have to go through the bother of adding them up, subtracting non-food items, and reimbursing yourself. Just ignore off-campus food, since you'll burn through all the 529 funds anyway. I learned this one a little late in the game )--;

10) About that COA... For one of my daughters, the school published specific amounts for tuition, fees, books, rent, food, etc. For the other daughter, the school broke out everything but lumped room and board (rent and food) together as one figure. So for the second daughter, I added up all rent and then only had to worry about a small amount of food. Just something to know.

11) Finally - books. Don't forget about amazon.com. They stock nearly all required books, and your son/daughter can have them shipped directly to their dorm or off-campus apartment. Very convenient, and provides you with documented evidence of what you paid for books. Without having to save receipts, if books are bought at the campus bookstore.

Okay, that should give you a good start and plenty to chew on!
Cheers!
Print the post Back To Top
Advertisement