Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I gave it to my kid and told them to save it for grad school but if they didn’t go to grad school they could use it for a downpayment or something (didn’t want to leave it in the 529 in case they didn’t go to grad school).

So you paid the withdrawal tax on it? Or, did you cheat on your taxes? Curious.

For reasons not worth explaining we ended up paying out of other funds so we neither paid the tax nor cheated on our taxes as there is no requirement that the exact dollars used for tuition be traceable to the 529.

Basically we felt that we didn’t need those funds for retirement or other siblings but also we weren’t sure we’d be able to contribute more to grad school so we decided it was better to give the funds now with the understanding that it was all they could expect to get to fund grad school.

What this person did is literally fraud. You can’t just take the money back out of a 529 and give it to the kid. Legally the money you have saved tax-free in a 529 account must go toward educational expenses. Otherwise you must pay a significant tax penalty. If this were allowed then lots of people would be using 529s as a way to get around paying taxes on capital gains.

If you have $25k in qualified educational expenses and you get a check for $25k from the 529 the IRS isn’t going to check if there were other deposits and withdrawals to your checking account between when you got the 529 check and paid the tuition bill.

Everyone (well apparently except you) understands that money is fungible and the limit on abusing 529s is having qualified educational expenses— not proving that the exact same dollar bills are traceable from the 529 to the college.

While I agree with you on this, it doesn't answer the question. The question is, if your kid's total qualified education expenses end up being significantly less than what's in their 529. If you had qualifying educational expenses that you used the 529 to pay for, even if you initially paid them another way, and then reimbursed yourself with the 529, that's a different thing.

I have told my kids that they need to work to provide their own spending money. If it looks like we won't use the 529 money, we can withdraw a reasonable amount for spending money, and give it to the kid. That would be legal, but it would only be a small portion of the 529.

How would you do that since spending money isn’t considered educational expense?

The rules for 529’s absolutely allow the funds to bused for living expenses, including rent, food, and reasonable amounts of spending money.

Anonymous wrote:Is it theirs to spend? With conditions or without?

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I gave it to my kid and told them to save it for grad school but if they didn’t go to grad school they could use it for a downpayment or something (didn’t want to leave it in the 529 in case they didn’t go to grad school).

So you paid the withdrawal tax on it? Or, did you cheat on your taxes? Curious.

For reasons not worth explaining we ended up paying out of other funds so we neither paid the tax nor cheated on our taxes as there is no requirement that the exact dollars used for tuition be traceable to the 529.

Basically we felt that we didn’t need those funds for retirement or other siblings but also we weren’t sure we’d be able to contribute more to grad school so we decided it was better to give the funds now with the understanding that it was all they could expect to get to fund grad school.

What this person did is literally fraud. You can’t just take the money back out of a 529 and give it to the kid. Legally the money you have saved tax-free in a 529 account must go toward educational expenses. Otherwise you must pay a significant tax penalty. If this were allowed then lots of people would be using 529s as a way to get around paying taxes on capital gains.

If you have $25k in qualified educational expenses and you get a check for $25k from the 529 the IRS isn’t going to check if there were other deposits and withdrawals to your checking account between when you got the 529 check and paid the tuition bill.

Everyone (well apparently except you) understands that money is fungible and the limit on abusing 529s is having qualified educational expenses— not proving that the exact same dollar bills are traceable from the 529 to the college.

While I agree with you on this, it doesn't answer the question. The question is, if your kid's total qualified education expenses end up being significantly less than what's in their 529. If you had qualifying educational expenses that you used the 529 to pay for, even if you initially paid them another way, and then reimbursed yourself with the 529, that's a different thing.

I have told my kids that they need to work to provide their own spending money. If it looks like we won't use the 529 money, we can withdraw a reasonable amount for spending money, and give it to the kid. That would be legal, but it would only be a small portion of the 529.

How would you do that since spending money isn’t considered educational expense?

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I gave it to my kid and told them to save it for grad school but if they didn’t go to grad school they could use it for a downpayment or something (didn’t want to leave it in the 529 in case they didn’t go to grad school).

So you paid the withdrawal tax on it? Or, did you cheat on your taxes? Curious.

For reasons not worth explaining we ended up paying out of other funds so we neither paid the tax nor cheated on our taxes as there is no requirement that the exact dollars used for tuition be traceable to the 529.

Basically we felt that we didn’t need those funds for retirement or other siblings but also we weren’t sure we’d be able to contribute more to grad school so we decided it was better to give the funds now with the understanding that it was all they could expect to get to fund grad school.

What this person did is literally fraud. You can’t just take the money back out of a 529 and give it to the kid. Legally the money you have saved tax-free in a 529 account must go toward educational expenses. Otherwise you must pay a significant tax penalty. If this were allowed then lots of people would be using 529s as a way to get around paying taxes on capital gains.

If you have $25k in qualified educational expenses and you get a check for $25k from the 529 the IRS isn’t going to check if there were other deposits and withdrawals to your checking account between when you got the 529 check and paid the tuition bill.

Everyone (well apparently except you) understands that money is fungible and the limit on abusing 529s is having qualified educational expenses— not proving that the exact same dollar bills are traceable from the 529 to the college.

While I agree with you on this, it doesn't answer the question. The question is, if your kid's total qualified education expenses end up being significantly less than what's in their 529. If you had qualifying educational expenses that you used the 529 to pay for, even if you initially paid them another way, and then reimbursed yourself with the 529, that's a different thing.

I have told my kids that they need to work to provide their own spending money. If it looks like we won't use the 529 money, we can withdraw a reasonable amount for spending money, and give it to the kid. That would be legal, but it would only be a small portion of the 529.

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I gave it to my kid and told them to save it for grad school but if they didn’t go to grad school they could use it for a downpayment or something (didn’t want to leave it in the 529 in case they didn’t go to grad school).

So you paid the withdrawal tax on it? Or, did you cheat on your taxes? Curious.

For reasons not worth explaining we ended up paying out of other funds so we neither paid the tax nor cheated on our taxes as there is no requirement that the exact dollars used for tuition be traceable to the 529.

Basically we felt that we didn’t need those funds for retirement or other siblings but also we weren’t sure we’d be able to contribute more to grad school so we decided it was better to give the funds now with the understanding that it was all they could expect to get to fund grad school.

What this person did is literally fraud. You can’t just take the money back out of a 529 and give it to the kid. Legally the money you have saved tax-free in a 529 account must go toward educational expenses. Otherwise you must pay a significant tax penalty. If this were allowed then lots of people would be using 529s as a way to get around paying taxes on capital gains.

If you have $25k in qualified educational expenses and you get a check for $25k from the 529 the IRS isn’t going to check if there were other deposits and withdrawals to your checking account between when you got the 529 check and paid the tuition bill.

Everyone (well apparently except you) understands that money is fungible and the limit on abusing 529s is having qualified educational expenses— not proving that the exact same dollar bills are traceable from the 529 to the college.

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I gave it to my kid and told them to save it for grad school but if they didn’t go to grad school they could use it for a downpayment or something (didn’t want to leave it in the 529 in case they didn’t go to grad school).

So you paid the withdrawal tax on it? Or, did you cheat on your taxes? Curious.

For reasons not worth explaining we ended up paying out of other funds so we neither paid the tax nor cheated on our taxes as there is no requirement that the exact dollars used for tuition be traceable to the 529.

Basically we felt that we didn’t need those funds for retirement or other siblings but also we weren’t sure we’d be able to contribute more to grad school so we decided it was better to give the funds now with the understanding that it was all they could expect to get to fund grad school.

What this person did is literally fraud. You can’t just take the money back out of a 529 and give it to the kid. Legally the money you have saved tax-free in a 529 account must go toward educational expenses. Otherwise you must pay a significant tax penalty. If this were allowed then lots of people would be using 529s as a way to get around paying taxes on capital gains.

Anonymous wrote:

Anonymous wrote:We have about 100k left. Just about enough to do 35k Roth each for 3 kids.

How much did you put away to begin with for 3 kids? Thank you,

Anonymous wrote:We have about 100k left. Just about enough to do 35k Roth each for 3 kids.

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I gave it to my kid and told them to save it for grad school but if they didn’t go to grad school they could use it for a downpayment or something (didn’t want to leave it in the 529 in case they didn’t go to grad school).

So you paid the withdrawal tax on it? Or, did you cheat on your taxes? Curious.

For reasons not worth explaining we ended up paying out of other funds so we neither paid the tax nor cheated on our taxes as there is no requirement that the exact dollars used for tuition be traceable to the 529.

Basically we felt that we didn’t need those funds for retirement or other siblings but also we weren’t sure we’d be able to contribute more to grad school so we decided it was better to give the funds now with the understanding that it was all they could expect to get to fund grad school.

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I gave it to my kid and told them to save it for grad school but if they didn’t go to grad school they could use it for a downpayment or something (didn’t want to leave it in the 529 in case they didn’t go to grad school).

So you paid the withdrawal tax on it? Or, did you cheat on your taxes? Curious.

For reasons not worth explaining we ended up paying out of other funds so we neither paid the tax nor cheated on our taxes as there is no requirement that the exact dollars used for tuition be traceable to the 529.

Basically we felt that we didn’t need those funds for retirement or other siblings but also we weren’t sure we’d be able to contribute more to grad school so we decided it was better to give the funds now with the understanding that it was all they could expect to get to fund grad school.

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I gave it to my kid and told them to save it for grad school but if they didn’t go to grad school they could use it for a downpayment or something (didn’t want to leave it in the 529 in case they didn’t go to grad school).

So you paid the withdrawal tax on it? Or, did you cheat on your taxes? Curious.

For reasons not worth explaining we ended up paying out of other funds so we neither paid the tax nor cheated on our taxes as there is no requirement that the exact dollars used for tuition be traceable to the 529.

Basically we felt that we didn’t need those funds for retirement or other siblings but also we weren’t sure we’d be able to contribute more to grad school so we decided it was better to give the funds now with the understanding that it was all they could expect to get to fund grad school.

LOL. So you cheated on your taxes, got it. Also, kinda dumb if he’s going up grad school. It could have grown tax free.

Go ask a tax lawyer how the rules work if you think that. Actually got letter audited by the IRS one year and had no complaint from them.

The taxes on a few years of growth if the kid does go to grad won’t be much and will be a lot less than the tax and penalties if they didn’t. On balance we were glad to be done with the 529.

Are you talking about IRS letter saying your filing doesn't match what they have? That's not an audit letter and that doesn't mean what you have done is correct. it just means they found an inconsistency in your filing.

- dp

🙄 It was a CP2000 proposing to make changes to my return on the theory that my 529 withdrawals were not for qualified educational expenses. I had to submit documentation showing my expenses and they withdrew the adjustment.

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I gave it to my kid and told them to save it for grad school but if they didn’t go to grad school they could use it for a downpayment or something (didn’t want to leave it in the 529 in case they didn’t go to grad school).

So you paid the withdrawal tax on it? Or, did you cheat on your taxes? Curious.

For reasons not worth explaining we ended up paying out of other funds so we neither paid the tax nor cheated on our taxes as there is no requirement that the exact dollars used for tuition be traceable to the 529.

Basically we felt that we didn’t need those funds for retirement or other siblings but also we weren’t sure we’d be able to contribute more to grad school so we decided it was better to give the funds now with the understanding that it was all they could expect to get to fund grad school.

LOL. So you cheated on your taxes, got it. Also, kinda dumb if he’s going up grad school. It could have grown tax free.

Go ask a tax lawyer how the rules work if you think that. Actually got letter audited by the IRS one year and had no complaint from them.

The taxes on a few years of growth if the kid does go to grad won’t be much and will be a lot less than the tax and penalties if they didn’t. On balance we were glad to be done with the 529.

Are you talking about IRS letter saying your filing doesn't match what they have? That's not an audit letter and that doesn't mean what you have done is correct. it just means they found an inconsistency in your filing.

- dp

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I gave it to my kid and told them to save it for grad school but if they didn’t go to grad school they could use it for a downpayment or something (didn’t want to leave it in the 529 in case they didn’t go to grad school).

So you paid the withdrawal tax on it? Or, did you cheat on your taxes? Curious.

For reasons not worth explaining we ended up paying out of other funds so we neither paid the tax nor cheated on our taxes as there is no requirement that the exact dollars used for tuition be traceable to the 529.

Basically we felt that we didn’t need those funds for retirement or other siblings but also we weren’t sure we’d be able to contribute more to grad school so we decided it was better to give the funds now with the understanding that it was all they could expect to get to fund grad school.

LOL. So you cheated on your taxes, got it. Also, kinda dumb if he’s going up grad school. It could have grown tax free.

Go ask a tax lawyer how the rules work if you think that. Actually got letter audited by the IRS one year and had no complaint from them.

The taxes on a few years of growth if the kid does go to grad won’t be much and will be a lot less than the tax and penalties if they didn’t. On balance we were glad to be done with the 529.

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I’m pretty confident that my DC will go to college, and we won’t qualify for aid. Given that, we are funding enough to cover 90-100% of in-state tuition and we will come out of pocket for anything other than that. I’m not at all worried about wasting these dollars.

OP here,

I've got enough put away for about 6 years of in-state tuition and room and board for each kids. I've told my oldest that he has a budget of $X total, and he's found some schools, a couple safeties and a couple matches where the NPCs say he could get the degrees he currently wants debt free. The ones he likes best would come in at the top of budget, and would probably require him to get a job and earn his own spending money, but that's fine. That is what this money is intended for.

But now, as he's getting ready to apply, he's realizing that there are programs where his stats will give him huge amounts of automatic merit, and where he would be able graduate with significant savings. These schools aren't as good a fit in other ways, but they aren't bad schools, just not exactly what he has been saying he wants in terms of size, location, extracurriculars, other subjects he wants to study on the side etc . . . So, he's asking "What happens to that money if I don't use it?" It's a good question so I'm trying to sort out how to answer it.

If he’s compromising his academics because he wants that money, then tell him he doesn’t get the money and if it’s not spent on undergrad and/or grad school, it’ll help fund your retirement. Later on you can decide what to do with it.