Grandparent making multiple distributions

[capo]

We are grandparents of 7 grandchildren and have funded 529 plans for each one. The 1st one is to start college next year and 3 others will follow shortly thereafter. Our concern is that making all of the distributions for tuition, books, room and board, etc. appears to be an overwhelming task that I don't think we are up to. This is on top of making sure each student is currently enrolled and not just dropping classes and getting the money. We do not want to give up ownership of the plans. How are other people handling this? Are there agencies that can handle the distributions and keep track for tax compliance?
Any advice would be welcome. It appears that the saving for the 529 plan was the easy part!

Thanks, Jim

[dcandmc]

Using a 529 to pay for the big stuff like tuition and room and board is pretty easy and straightforward. If you want to make sure the 529 money goes where it's meant to go, ask to see the bill for each semester once it becomes available to the student, and then make a payment with 529 money directly to the school that covers all the 529 qualified expenses on that bill. Simple; do this two times each academic year per student. Just make sure that the 529 distribution(s) and the payment(s) they are meant to cover happen in the same tax year. Books are not quite as simple, but if the student can show you receipts for the books and other required supplies, you can then reimburse for those expenses with 529 funds. Again, make sure that the 529 distribution takes place in the same tax year that the books (or other required supplies) were purchased.

[capo]

I agree that paying tuition directly is fairly easy. What happens if the student drops a class and gets a tuition rebate or falls below being at least a half time student? Tax problem for me, or will I really know? If the student lives off campus, do you send monthly checks for room and board? Maybe not a problem keeping up with one student, how about 2 or 3?
Just asking.

[dcandmc]

Keep a separate file for each grandchild student who is a 529 beneficiary. With just a little bit of organizational skills, keeping up with three shouldn't be any more difficult than keeping up with one (which is pretty easy).

If you have the 529 plan administrator send the funds directly to the school for direct billed qualified expenses, the 1099-Q tax form that comes from the 529 plan will be issued in the student's name and SSN. That means that any "tax problems" will belong to the student and not you as the account owner. Make sure the student knows that any refund of expenses paid with 529 funds can be recontributed to the 529 within 60 days of the date of refund, without any penalty or tax consequence.

Off-campus qualified room and board expenses add a twist, but again, even a modicum of organizational skills is all you need. Just make sure not to use more 529 money than the school's published cost of attendance for the student's particular situation, and as always match up the 529 distributions and the actual payment for the expenses that are being covered in the same tax year.

[capo]

Good info, thanks. Talked to admissions and I can ask my granddaughter for her records password so I can keep track of her enrollment status. Maybe a little intrusive, but I have been in this rodeo before with my kids. Also, I assume I am on the hook for her monthly room and board 529 payments if she drops below half time, correct?

[dcandmc]

Also, I assume I am on the hook for her monthly room and board 529 payments if she drops below half time, correct?

I'm not sure what you mean by this. Room and board expenses will be non-qualified for 529 purposes if the beneficiary is less than a half-time student. You could still pay for room and board with a 529 in this case, but the earnings portion of any 529 funds used for non-qualified expenses will be subject to income tax and, unless an exception applies, a 10% "additional tax." As long as 529 distributions for non-qualified expenses are made to the beneficiary or directly to the school, you as the 529 account owner will not be assessed for the tax; the burden will fall on the beneficiary.

[capo]

OK, I assumed that I would be getting room and board money from the plan and then cutting a check to the student. It sounds as if I should have the plan pay not only the tuition directly to the school, but also pay the monthly room and board directly to the student. If that is correct, it makes me feel a lot easier about my tax liability if I keep distributions within the schools cost estimates.

[dcandmc]

If the room and/or board is directly billed by the college (for instance, if the student lives on campus or in school-owned housing), just request a direct payment from the 529 account to the school when tuition and other qualified expenses are billed by the school.

[capo]

My question here is if the student is living and eating off campus, can the 529 plan cut monthly checks directly to the student and keep me out of the tax paper trail. I am well aware that the amount must be kept at or below the schools projection and within the proper year.

[dcandmc]

My question here is if the student is living and eating off campus, can the 529 plan cut monthly checks directly to the student and keep me out of the tax paper trail.

Generally, yes. Specific administrative requirements and procedures will be dictated by the plan administrator. Check with your plan.

[capo]

Thanks for your help. Talked to the Utah 529 people and I can set up a monthly transfer direct to her bank account for rent and food and also request additional transfers for books, supplies, etc. The 1099 goes to her and keeping the records is her responsibility. This is a good break in for when I have more grandchildren go to college.