Child is starting grad school this summer. The COA living expenses listed on the website for the coming school year are VERY low and unrealistic. She is living quite simply in a 3B/1BA shared house with two other roommates. A neighboring university (literally blocks away) shows a living expense that is 30% more than my daughter’s school. Is there anything we can do as we want to use as much money as we can from the 529 but it’s my understanding that we can’t take out more than the listed COA living expenses.
Does the school have graduate student housing? If so, what is the cost compared to the rent that your daughter is paying now?
Is there a meal plan listed for grad students, with costs? Often these meal plans exclude weekends, or maybe only provide 2 meals a day etc.
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No housing or meals are provided to any students. It is a small school that only offers graduate programs. They did not adjust the living expenses at all from last year which is absurd, the school is in a very expensive city where rent and food prices have gone up (like everywhere else I’m sure).
If there is no housing or meal plan offered, then there is no information to use for the 529.
Can you call the school and ask for an updated COA? Maybe call the 529 plan and explain the problem- I have done that.
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They have a COA chart that shows tuition, fees and then estimated living expenses as a line item. I assume that is what would have to report to the IRS if audited on our 529 withdrawal. The COA tuition has been updated for this year but nothing else appears to have changed.
I would call FA and ask if they can provide you with a letter showing an updated COA.
Depending on how that goes, I would call 529 and explain what is going on and ask them to advise you. There must be a way to do this given that the school does not have housing or meal plans.
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Typically COA is their cost - ie dorm and meal plan.
I can’t claim near as much as the actual cost for the same reason.
Don’t forget you can now move excess money (up to $35k) into a Roth.
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The school does not have housing or meal plans.
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Thoughts @belknappoint?
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Thanks @twogirls
Yes, you can. You can always take out more than the listed COA. The catch is that any distribution that exceeds that COA (plus other qualified expenses) will be unqualified, and the person to whom the distribution is made payable will need to claim as taxable income, and possibly pay the 10% penalty on, the earnings portion of the unqualified amount. In certain circumstances, this may not add up to much, if anything. For example, the earnings to contributions ratio may be very small, or the person claiming the income and filing the tax return may have so little other income that the standard deduction wipes out any tax liability. Run the numbers and see what you are facing. It may not be nearly as bad as you think it could be.
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Yes, there is. There is the COA that the school is required to publish, that apparently in this case is geared 100% to living and eating off campus. Lots of schools have multiple COAs that differ based on different possible student living situations: in school housing on a school meal plan; living off campus and not paying for a school meal plan; living at home. This is what is used to determine the amount of qualified room and board expenses for 529 distributions.
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I know costs are posted, but I didn’t know if this case would be different because there is no housing offered. Would this person be able to get a letter from the school with an updated COA?
What if somebody does not want to take out more than the listed COA and pay the 10% penalty? The penalty seems wrong given that the COA is not updated to reflect the true costs of housing…and that students must live off campus (no choice).
I realize there might not be anything to do other than pay a penalty. I am just venting.
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Especially for grad school it’s always worth being careful to ensure that distributions are sent to the kid, not the parent, and that the kid has escaped the kiddie tax net. For example by distributing the money in the year they reach the age of 24 not beforehand. Also if they receive a scholarship for tuition, then this will hopefully allow them to avoid the 10% penalty on distributions.
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Let’s be honest too. You tell the 529 how much to give you.
If you took $20k and the listed cost of living was $15k, there’d be no penalty because no one checks this. You simply tell your 529 what to disburse you.
If you have documentation that shows what it cost to live, then keep it
I’m guessing most 529 users are taking out actual expense. I don’t believe most know to use the schools published COA.
I use it and while I like to follow the rules, I wouldn’t think lowly of anyone who is simply being reimbursed for what they spent, especially in an area like where my kid goes to school where rent (for not a great place) is more than the published cost of living.
I’d make sure though that you are not getting aid that will push the aid plus 529 figure above attendance.
To each their own. I wouldn’t do this but I wouldn’t think less of anyone who did.
When you get a 529 you are told it covers loving too.
It’s a hard wake up later that it doesn’t necessarily.
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We followed the rules with regard to costs and 529 withdrawals and continue to do so today for grad school. Undergrad off campus housing (for us) cost a lot less than the dorms so it was never an issue. I called our 529 plan and had a conversation with them about off campus housing.
Now we are only using the 529 for grad school tuition and not for R/B, but if we did we would run into the same problem as the OP. Off campus housing is almost double the cost of on-campus graduate housing…. at her current location.
I thought that since this student’s school does not offer housing… and the COA has not been updated…maybe there would not be a penalty, but I guess I am wrong.
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Thanks everyone for the input. She is getting a scholarship from the school which as I now understand she can take out an equivalent amount from her 529 — while it won’t have the 10% penalty, it will be taxed. But this should definitely cover the discrepancy in the published living expenses. We are meeting with our accountant next week about some other stuff and will definitely bring this up.
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The only exception in IRC Section 529 to using the published COA for room and board occurs when the housing is owned or operated by the eligible educational institution. In that case, one may use the greater of the actual invoice amount or the COA and still consider it a qualified withdrawal.
Convincing the school to update their published COA may be close to a Sisyphean task as it may be in the school’s interest for marketing purposes to underestimate the cost of off-campus housing.
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My thought exactly re: marketing — they are doing their best to obscure the actual cost of living. (It’s Boston area BTW)
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That is interesting about scholarships- I will look into that as well. Thank you!