Can you share your experience with using cc to pay for the qualified expenses and withdrawing the funds from 529 accounts to cover the cc bills? Are there any specific issues or concerns to look out for? Many thanks for your feedback.
Just make sure that the credit card charge(s) for the 529 qualified expenses and the 529 distribution(s) to reimburse the charge(s) are done in the same tax year. And keep records to document everything.
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Not exactly sure why you want to pay with credit card (maybe getting miles?) but make sure that the credit card surcharge most schools place on credit card payments doesn’t negate the value of the air miles (if that is the purpose of choice of payment).
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My kids college allowed credit cards for things like deposits but not to pay the big tuition bill.
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That was going to be my next question - what sort of surcharges or fees are imposed by cc companies or the schools for this type of transactions…and yes, think it is worth looking into this payments structure for air miles or cash back.
The surcharges I’ve seen across several schools (haven’t looked exhaustively) ranged from 2.85% - a little over 4%.
I couldn’t see the economic value of trying to use the credit card to make payments (to get miles) and reimburse from 529 unless you are concerned you’ve over saved in the 529 and are trying to get as much money out as possible tax free so don’t care about a rather large surcharge.
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3-4% surcharge is steep and can put this scheme out of play…oversaving in 529 accounts is a good problem to have to solve…
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You can use a credit card to pay for 529 qualified expenses where a surcharge is not a factor - books, computer equipment, groceries - and be reimbursed from the 529 account.
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Yes, but not sure if the amount of paperwork and bookkeeping will justify the points/cash rewards.
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What are the mechanics of payment processing? Do you set up a direct withdrawal from the 529 account to a credit card company?
I’ve had kids at 6 different universities, credit card fees are high, we always just do a transfer from the 529 or checking account.
Credit card fees charged to schools are ridiculous, and they have to pass them on to those who want to charge tuition.
No. Payments from the 529 account can only go to the 529 account owner, the 529 beneficiary or the school. For reimbursing the credit card charge of a 529 qualified expense, have the 529 distribution go to the credit card holder (the student beneficiary or the parent/529 account owner).
At D18’s school there was a flat fee of $3 for credit card payments, regardless of the amount. So I expect a lot of people paid by credit card.
Crazy thought…or maybe not- can the 529 withdrawal be directed to be deposited into a Roth IRA account of the beneficiary of a 529 account? Is it permissible or will I get a knock on the door from IRS for this?
In my experience, that most likely means that tuition was increased at least 3% to cover fees. In other words, everyone has to pay the credit card fees, whether or not they actually charge tuition. Those fees have to get paid somehow.
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Maybe, but TBD by the IRS. I haven’t yet seen any regulations or IRS direction on how to use 529 dollars to make contributions to a Roth IRA account of a 529 beneficiary. This qualified distribution (subject to a dollar limit and certain Roth restrictions) will be possible starting in 16 days.
Edited to add: ok, it looks like any 529 money contributed to a 529 beneficiary’s Roth IRA (starting in January) must be done through a plan-to-plan or trustee-to-trustee rollover to be qualified. There are a bunch of other restrictions and limitations as well. The new 529 rollover to Roth IRA - Journal of Accountancy
There shall be no free lunch for anyone for any reason 
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Thank you for the info and the link, very informative.
Which means that you’d better take advantage of the ability to use your credit card, or you are subsidizing others who do pay that way…
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