<p>If someone out there understands 529’s I would greatly appreciate some info (answers, clarifications or confirmations) as my accountant and the 529 company both do not seem to be too sure. Briefly:</p>
<p>I set up at 529 for my son (i am not the custodial parent) some years ago but did it with his grandmother as the owner as I did not want it connected to my name just in case… My son (the high school senior) was accepted at college and just received his financial aid offer. It was approx 50% in grants and 50% in loans. There is enough in the 529 account to pay for everything that is suggested to take out in loans.</p>
<p>My questions are:</p>
<p>1) The school he got into does not care about the 529 at all as long as the custodial parent does not own it. Should I put it back in my name or just leave it in my mom’s name. If she dies it automatically transfers over to me anyway as the custodian. It does not go into her estate (at least that is what the bank told me).</p>
<p>2) The college is suggesting something called a PLUS LOAN. This is a loan that my son’s mother would have to take out. I want to use the 529 for this value so she does not have to take out this loan. It is a loan that she would start paying back right after she takes it out.</p>
<p>3) My son is offered Perkins and Stafford loans. I would like him to take those loans because the clock does not start ticking until he finishes college. My question is can we pay off the Perkins and Stafford loans in full in four years when he gets out of school with the money from the 529? There is some doubt whether you can use money from a 529 to pay off college loans.</p>
<p>4) How do we use the 529 account for expenses my son will have during the year. he will be going to school in a big city and it is not cheap. Students in the program he will attend are telling us he will need approx $400.00/month living expenses (above and beyond the housing and meal plan).</p>
<p>5) The program my son is in will require some special equipment (ie: a mac lap top with alot of programs in it approx $3,500.00). The school does not specifically require it but every student in the program has it and my son must as well. Can we pay for this out of the 529?</p>
<p>1) Unless you have a reason to put it in your name, there’s no reason to transfer it. Your son may want to transfer to a school that will consider a 529 in your name.</p>
<p>2) Any parent can take out a PLUS loan. No one has to. The school doesn’t need to know where that amount of money comes from.</p>
<p>3) I don’t know about this one.</p>
<p>4) It’s easier to pay directly to the school and use other funds, if available, to pay for the other costs.</p>
<p>5) You can buy the equipment and have the 529 reimburse you via check for the exact amount of the equipment (say, the computer). Then keep a copy of the check with the receipt for the equipment so you can confirm to the IRS that the funds were expended for qualified expenses.</p>
<p>I would suggest that you get a separate check for each piece of equipment/computer if the costs are high enough; makes the bookkeeping easier.</p>
My understanding is that paying off a college loan is not a qualified expenses. You can still use the money from the 529 account but withdrawing it will probably incur taxes and the penalty if there are no offsetting qualified expenses in the year of withdrawal. Alternatively there is a clause in the relevant tax publication where you can withdraw the money because the students expenses are covered by scholarships. We are in a similar situation. We are having our daughter take out the subsidized loans and the plan is to use the 529 funds for med or grad school I to pay off the loans if neither of those two things do not happen. And I am trying to unerstand if I can withdraw the funds based on the ‘scholarships’ clause and if so when to do it.</p>
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I was under the impression you could not use the 529 funds tax free for this unless the items are specifically required. Even if needed. Chedva I would be interested to hear if there is a definitave ruling on this myself.</p>
<p>I was told by Fidelity, who administers my state’s 529 program, that the “required” is actually quite loose - computers generally fit the definition, even if not technically “required”. A student can by a “recommended” book with the funds.</p>
<p>regarding using the 529 to pay back loans, someone on another chat site told me that you can overpay the school (pay them more than you have to) and the school will reimburse the money directly to your child. Only your child. If this is true can we do that to slowly take money out of the 529 and accumulate it without penalty to pay the college expenses?</p>
<p>As the non custodial parent can I be the one who takes out the PLUS LOAN? My ex wife (the custodial parent) will probably not even qualify for it. </p>
<p>Bobby-B, based on what I know (and remember that I’m not a financial expert, just someone who’s read a bit), the “overpay and get money back” scheme won’t work. You must show the IRS that the expenditures match the expenses. If you overpay and get the funds back, you’ll be subject to the same penalties as a straight withdrawal.</p>
<p>I believe that a non-custodial parent can take out a PLUS loan. Take a look at [FinAid</a>! Financial Aid, College Scholarships and Student Loans](<a href=“http://www.finaid.org%5DFinAid”>http://www.finaid.org) for more info.</p>