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I have a single Vanguard 529 plan for two kids, who are four years apart in age. But hey, they go to private school now, and there are tons of gains in the account.

  1. What accounting steps are needed. For example, do I need to pay the private school directly from 529 account? Do I need to withdraw the money in the same month as the private school tuition is due?

  2. Do I now need two 529 accounts?

  3. Can reimburse myself on December 31st, thus leaving the money "in the market" as long as possible?

  • I noticed the expanded use for 529 plans under the new tax law. What we're wondering is whether we can pay for STEM/Academic-focused summer camps at universities/colleges. – Zippy The Pinhead Jan 20 '18 at 23:31
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Regarding K-12 schools and 529 plans.

  1. What accounting steps are needed. For example, do I need to pay the private school directly from 529 account? Do I need to withdraw the money in the same month as the private school tuition is due?

You will have to wait for your 529 plan to update their documents. I just checked the one for VA and they made an update on 02 January 2018:

As we go to print with this latest version of the Invest529 Program Description, Congress has just passed H.R. 1, the Tax Cuts and Jobs Act. This bill may impact 529 programs and, should it become law, we will publish an update to this document as soon as possible after passage

A key provision will be the phrase in the 529 plan documents:

Eligible Educational Institution is any college, university, vocational school, graduate or professional school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education.

So they will have to update this. And they will have to define what is an eligible education institution.

The school itself may have to update their procedures. They might have to produce a 1099-t for tuition so that families using 529 money can show that they had valid education expenses.

Currently for colleges they produce a 1099-T for all students, because it is needed not only for 529 users but also anybody claiming a tax credit.

Under the previous law the money didn't have to be sent directly to the college. The bill could be paid, and then a withdrawal could be made from the 529 plan to the owner or beneficiary. My plan was always to send the money directly to the university, but then in an early semester the school canceled a class for low signups, and then the new class had a lab fee. So the extra money had to come from my bank account and then a request was made from the 529 plan to repay me. The deadline was too tight to make a direct transfer. Now I just plan for last minute changes and wait until a few weeks into the semester to pull the funds from the 529.

2. Do I now need two 529 accounts?

I don't think so. But if you will be withdrawing money sooner than you planned you might need to increase your contributions so you will still have money left for college.

Another issue.

what might happen is that schools offering scholarships for K-12 programs may decide to have parents report 529 plan balances. They may do this because somebody with a large 529 balance can now pay for tuition from the 529 plan. How much they expect a family to pay from the plan when calculating how much tuition they can afford will be interesting to watch.

  • Sounds like the right tax strategy is to pay tuition through the year, then make a $10,000 withdrawal on December 31. That is, if you're among the people who did not really need this deduction in the first place.... – Bryce Jan 10 '18 at 6:42
  • Vanguard wrote back to me, and said I need two accounts. – Bryce Jan 19 '18 at 0:53
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Vanguard wrote back to me:

Effective December 31, 2017, IRC Section 529 now allows withdrawals of up to $10,000 per beneficiary, per year, for qualified elementary and high school (K-12) expenses, free of federal income tax and penalties. Qualified elementary and high school expenses include expenses for tuition incurred during the taxable year in connection with the enrollment or attendance of the designated beneficiary at a public, private, or religious elementary or secondary school.

The $10,000 withdrawal limit applies on a per-student basis, rather than a per-account basis. Although an individual may be the designated beneficiary of multiple 529 accounts, that individual may only receive a maximum of $10,000 of distributions free of federal tax, regardless of the source of distribution, per year.

The tax treatment of such withdrawals at the state level (determined by the taxpayer’s state of residence) is less clear and will be determined by each state independently.

  • What about sending your student to a summer academic "camp" at a university or college? These are not cheap, but does it qualify as tuition? They don't get a grade or a transcript. – Zippy The Pinhead Jan 20 '18 at 23:22

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