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Urgent end of the year financial question.

bebooksbebooks Registered User Posts: 42 Junior Member
edited December 2012 in Parents Forum
My son has one class left to finish his major. He will take this class spring semester. We will be loaning him the money to pay his tuition. There are a number of scenarios to consider for the best tax benefit. I could use some help in sorting this out.

We still have an Iowa College Savings 529 plan open for him. We could make a deposit to that account before Dec. 31 and receive a tax benefit for us (the parents). If we do that, should we then make the withdrawal directly to the college or to our son?

The other option is to give the money to our son and let him pay the bill and get the tax benefit - if indeed he would qualify for one.

Where is the best tax benefit?

He will be in his 5th year of college spring semester. He will take just the one class and be working a job. He has been a dependent in 2012 but will not in 2013.

Thanks in advance!
Post edited by bebooks on

Replies to: Urgent end of the year financial question.

  • BCEagle91BCEagle91 Registered User Posts: 22,762 Senior Member
    What does the course cost?
  • happymomof1happymomof1 Registered User Posts: 29,457 Senior Member
    You may want to take a look at this: http://www.irs.gov/pub/irs-pdf/p970.pdf But do remember that the deductions that exist now might be gone in 2013.
  • charlieschmcharlieschm Registered User Posts: 4,282 Senior Member
    529 withdrawals should be spent the same year in which they are withdrawn.

    For most people, the main benefit of a 529 deposit is at the state income tax level. That is unlikely to change from this year to next year.

    Most people believe that Congress will end up continuing all of the middle class tax benefits, but it may take them a little while to vote to do it. The expectation is those tax extensions will be retroactive to Jan. 1, even if they don't get their act together until March.
  • bebooksbebooks Registered User Posts: 42 Junior Member
    Thanks for the quick replies. The class will cost about $2600. Happymomof1 - your reminder that many of the tax benefits for 2013 are quite uncertain, it might make sense to go with the certainty I know - the state tax deductibility of the 529 contribution.
  • bebooksbebooks Registered User Posts: 42 Junior Member
    Charlieschm - thanks. I should have clarified. If we make the 529 contribution by Dec. 31, the withdrawal would not take place until Jan. 2013. I'm not sure what my son's potential tax benefit might be if he makes the payment himself. I will need to review the link that happymomof1 sent.
  • lake42kslake42ks Registered User Posts: 1,171 Member
    Your state may have a per student yearly cap to 529 tax benefit-wise, say $2K?
  • bebooksbebooks Registered User Posts: 42 Junior Member
    lake42ks - fortunately, Iowa allows up to $2975
  • SteveMASteveMA Registered User Posts: 6,079 Senior Member
    Run an online Turbo Tax of both tax situations using pay stubs and see which one would give you the biggest break.

    The tax savings comes from the deposit into the account, not the use of the funds so the deposit date is what is important, not the withdrawal date. For your son to get the benefit of the tax plan, the money would have to be spent in the tax year that the deduction would be used so he would have to take the deduction for next year since the class doesn't start until next year.

    Iowa allows you AND your spouse to contribute the $2975 so you can actually contribute $5950 if you are looking for more of a tax write-off this year.

    I would make the payment to the school, not your son. It's just a lot less messy if you get audited.
  • bebooksbebooks Registered User Posts: 42 Junior Member
    Ah...good suggestion SteveMA.
  • bebooksbebooks Registered User Posts: 42 Junior Member
    Since the class is for second semester, when our son would no longer be a dependent, that he would have the best tax benefit if he paid for the class and claimed it as an education expense on his taxes. Thanks for helping me think this through.
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