Qualified Education Expenses

My high school senior daughter was accepted to the state university, but under a second tier where she can't live on campus the first semester. Many of the students in this program stay in just-off campus rental housing for the fall semester.

I have saved in our state's 529 plan, the gain on the investment can be used tax/penalty free for Qualified Education Expenses (QEEs).

In my situation, I know if my daughter had on-campus housing and meal plan, these are QEEs. Can someone advise if living expenses (rent) just off campus due to school policy preventing living on campus the first semester is a QEE? What about food if not a school meal plan? I want to be able to use my saved 529 funds tax and penalty free, and the school is admitting her on condition she not live on campus the first semester.

Pub 970 to me is not clear on this. However, I have seen articles suggesting that off campus housing and food expenses to attend university are QEEs as long as not exceeding the school's on-campus price quoted for financial aid purposes.

So for example, if the school's on-campus advertised room and board is $9500 for two semesters, and I pay $11000 for an apartment and groceries for my daughter right off campus, I interpret I can withdraw $9500 from the 529 account and it's gain won't be subject to taxes/penalties. However, if I take out $11000, then the gain on the excess $1500 is subject to income tax and a 10% penalty. Correct? Or is none of off-campus living expenses to attend university QEE? In our case we have to abide by an off-campus arrangement because the University is mandating no eligibility for on-campus housing as a condition of admission. She will be considered for on-campus housing in the second semester.

However, most juniors and seniors opt to live just off campus, so the same question applies. I saved for 4 years of room and board in the 529 plan, and want to use this investment tax and penalty free if possible. If off-campus expenses are more expensive than on-campus, I'm willing to cover the difference out of pocket to avoid taxes/penalties on the gain. But I don't even know that any off-campus living expenses are QEE.

Reply to
Dimitrios Paskoudniakis
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Off campus room and board can be included in QEE as long as the amount does not exceed the larger of the school's allowance for room and board or the actual amount charged if she is staying in off campus housing that is owned or operated by the school.

Using your example, and assuming she is not staying in housing owned or operated by the school, then only $9500 of expenses would be QEE.

Whether or not you owe any tax depends upon whether the distribution contains a gain on your investment. The 1099-Q would contain an amount in Box 2 (your earnings) if there was a gain. Box 3 would contain a return on principal. See page 55 of IRS Pub for the formula you would have to use to compute taxable earnings. The taxable amount gets reported by the beneficiary, not you.

Reply to
Alan

BTW - on which form do we enter any 529 withdrawals and the corresponding QEE info ?

Reply to
ps56k

I can see this is gonna be complicated, and a manual effort, with several elements to be calculated, and it doesn't seem that TurboTax (and/or) the IRS forms can handle mixing all the numbers together.

1099-T for "billed" tuition - $12k

1098-Q for 529 withdrawal - $13k paid tuition = $12k and dorm = $4k

also deposited into another 529 plan - $20k so.... is this a rollover vs paid expenses ?

Downloaded & will have to read thru IRS pub 970 (edu deductions), but as yet, I don't really see a "form" that takes into account all these varied transactions.

Reply to
ps56k

Already mentioned that this is worthless information. Amount spent on QEE is what matters.

As the 529 withdrawal was expended on QEE, there is nothing to report. Retain the 1099-Q and proof of expenditures in case you are audited.

I have no idea what you are talking about as you have not provided any facts surrounding the $20K and its source, ownership of the account or names and relationships of the beneficiaries.

Reply to
Alan

Thanks for the info. Does any income from gain on distribution get applied to my daughter's income even though I claim her on my return?

I plan to exercise the American Opportunity Credit or the Lifetime Learning Credit. I believe any gain prorated against the ratio of Adjusted QEE (AQEE) to the distribution has to be added as income to my tax return in order for me to then take the credit. Correct?

Reply to
Dimitrios Paskoudniakis

See reply to your other post.

Reply to
Alan

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