<p>A couple of questions for experts out there:</p>
<p>Do some colleges allow parents to pay the balance monthly? </p>
<p>Also, is it a good idea to have more taxes taken out during the year so that we get a bigger refund that can go into the 529 account? My parents set up a small 529 account for my older two children. My oldest will apply for schools in the fall and he has about 5K left in his. We have been unable to add anything but dh was thinking if he had more taxes taken out, we could us the refund next February to put into the 529K. Does this make sense?</p>
<p>We’re just trying to think of creative ways to have a little more money to cover our EFC.</p>
<p>Why not just put that extra straight into a 529 account every month? If you have more money taken out in taxes then you owe, then the IRS is making money on that for a year rather than you. </p>
<p>Some schools have monthly payment plans.</p>
<p>You can set up a payment plan with Sallie Mae to pay your college monthly if your college participates. </p>
<p><a href=“https://tuitionpay.salliemae.com/tuitionpay.asp[/url]”>https://tuitionpay.salliemae.com/tuitionpay.asp</a></p>
<p>There’s a setup charge of $60 but otherwise no interest or other charges. I used it last year and found it to be very convenient.</p>
<p>I agree with swimcatsmom: it’s never a good idea to have excess withheld from your paycheck. You’re giving the government free use of your money, which you might otherwise contribute directly to a tax-free 529.</p>
<p>Ok, I got it wrong. My dh didn’t say to withhold more taxes-sorry! He was asking that if we put money in monthly to a 529 and the school has a payment plan, can we take money from the 529 monthly to pay the school? Would it benefit us to do it that way, that is, to pay the school through the 529, or is college tuition tax deductible anyways? </p>
<p>We’re just trying to figure out the best way to anticipate paying for EFC.</p>
<p>You can pay the school through the 529 if your plan allows a direct payment (many plans do). You can’t set up a monthly payment from the 529 to the school via the Sallie Mae plan I linked above.</p>
<p>There are some Federal tax credits available for college expenses (they phase out above a certain AGI). It doesn’t matter where the funds originated (your checking account, your 529, a brokerage account etc) in order to claim the credits. </p>
<p><a href=“https://www.edfund.org/pubs_order/epub_GetPdf.cfm?documentId=I-91[/url]”>https://www.edfund.org/pubs_order/epub_GetPdf.cfm?documentId=I-91</a></p>
<p>Check into the rules for your 529. In some states, you’ll get a state tax deduction or even a tax credit for contributions. For states that offer deductions/credits, the funds might need to remain in the account for a certain amount of time.</p>
<p>[Compare</a> 529 Plans](<a href=“http://www.savingforcollege.com/compare_529_plans/?plan_question_ids]Compare”>http://www.savingforcollege.com/compare_529_plans/?plan_question_ids)</p>
<p>Grandparent-owned 529s are not reportable on FAFSA (they are on the Profile form). So these accounts that your in-laws set up have at least 3 benefits: they don’t affect EFC, the money grows tax-free, and they will help your children pay for college. Those first 2 benefits don’t affect you because presumably the 529 was funded by the grandparents.</p>
<p>Why not just set up your own 529 and contribute to it over time as you have extra cash? You can name your older child as the initial beneficiary. If there’s money left over, you can change beneficiary to your 2nd child and so forth.</p>
<p>
Actually, it does matter where the funds originated from. You can’t “double dip” when it comes to taking a tax benefit. If you take a 529 account distribution as a tax and penalty free distribution for qualified education expenses, you can not also use the expenses paid for with the 529 account funds to claim an education tax credit. IRS 970 has all the rules regarding education tax benefits.</p>
<p>I was wondering that exact question, swimcatsmom.</p>
<p>^^ yes, it’s complicated, but benefits can be coordinated. The 529 withdrawals must be coordinated with the American Opportunity credit. Here’s pub 970:</p>
<p><a href=“http://www.irs.gov/pub/irs-pdf/p970.pdf[/url]”>http://www.irs.gov/pub/irs-pdf/p970.pdf</a></p>
<p>The good news is that 529 account withdrawals can be used for certain expenses (primarily room and board but also computers the last couple of years) that are not qualified expenses for the tax credits. So if a person has fairly limited 529 funds it is pretty easy to apply the 529 account funds to those expenses. Then other qualified expenses can be paid with other funds (including loans) and be eligible for the tax credits. If there are large balances inn the 529 account that are used for tuition/fees, then it gets trickier.</p>
<p>It can get tricky coordinating it all to maximise the tax benefits. I do an excel spread sheet assigning how payments (loan money, scholarship/grant money, 529 acct money) are applied to what (tuition and fees, books, room & board). </p>
<p>Just one more year. My taxes for 2012 are going to be so simple, I won’t know what to do with myself! Maybe I’ll let my husband have them back (I have been doing them since we have been in the college/FAFSA period).</p>
<p>From that IRS link posted, on page 55:</p>
<p>Coordination With American Opportunity Adjusted qualified education expenses. </p>
<p>An American opportunity or lifetime learning credit (education credit) can be claimed in the same year the beneficiary takes a tax-free distribution from a QTP, as long as the same expenses are not used for both benefits. This means that after the beneficiary reduces qualified education expenses by tax-free educational assistance, he or she must
further reduce them by the expenses taken into account in determining the credit.</p>