Daughter #2 has gotten fed aide for school for a few years. College subtracts Fed Aide from bill tells us what we owe, I send money from 529b plan. Use Fed Loan money to count for out of pocket money used for tuition to apply to Tax Credits. Easy. legit no problem
Daughter #1 just started getting Fed Aide for tuition. New school tells me full bill not after Fed Aide (unknown to me at the time). I send Full amount from 529b. school drops fed aide money in her account now there is a balance. Which they will send to me.
Hope you follow so far. Pic might help.
She is living off campus, housing is about $2800 529 money can go to Room and Board, Room and Board do not apply as expenses for Tax credit.
So is the refunded money 529b Money and all is fine, or is it Fed Loan money, and then I don’t have $2500 in applicable expenses for the tax credit.
This college money and taxes is so unclear and convoluted it is easy to get lost.
I think it got mingled at the school and I can choose which money it is.
My thought is that you need to speak with your tax person ASAP. And let me know what they say. My daughter starts college next August and I’d prefer not to learn the hard way.
My thought is that you need to speak with your tax person ASAP. And let me know what they say. My daughter starts college next August and I’d prefer not to learn the hard way.
I did he said “I think it got mingled at the school and I can choose which money it is.”
I am my own tax guy.
Taxes and college funds (529’s, Tax credits etc… are all very odd and pretty much up to you to track and record)
So I will track as this is 529 money coming back and being used for Rent…
The odds that anyone will ever know this happened are quite small. Just keep a paper trail and make some notes about what happened so you can show what you did in the odd event of an audit. As long a you can show that the 529 money all eventually went to approved expenses I think you will be fine. JMO, of course.
Your 1099T is probably going to be screwed up. Good luck with that but just keep a paper trail. It’s like charity, you say you gave money and if you get audited you better have a few receipts.
The risk if audit is less than 1%. If you are straight w-2 income with a few deductions, risk of audit is near zero.
