529 distribution counts as support by beneficiary or original owner?

Home Fairmark Forum Kids and College 529 distribution counts as support by beneficiary or original owner?

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  • #4576
    47percent
    Participant

    I see a lot of discussions on the web but very little definitive answers. Has the IRS come down one way or the other, or issued any guidelines regarding this.

    What factors, if any, go into determining this. I am especially interested if it can be considered self-support by the student himself.

    #4579
    kaneohe
    Participant

    Not sure if this is what you are asking………..but I’ve always seen the same answer re: grandparent-owned 529s. Spending from those is considered the student’s income which is weighted heavily against the student for future financial aid. The fix is to not use these funds until the last 2 yrs of college when it won’t affect financial aid.
    https://www.savingforcollege.com/intro-to-529s/does-a-529-plan-affect-financial-aid

    not sure this is an IRS issue……..seems more like the FAFSA folks.

    #4581
    47percent
    Participant

    Thanks Kanohe..

    But my question was not about FAFSA or financial aid.

    I have near zero chance of getting any financial aid. The question is how we can maximize our own funds.

    I would like my child to be able to claim standard deduction when he is in college. For that he has to provide more than half half his own support. If he spends from 529 would that be counted as coming from him? If not, what can I do to make it so?

    • This reply was modified 2 months, 1 week ago by  47percent.
    #4583
    kaneohe
    Participant

    Thanks for clarifying. This one suggests the IRS has not given guidance:
    https://www.journalofaccountancy.com/issues/2012/mar/20114558.html
    w/ some possible bias that it’s the owner’s spending, not the beneficiary’s.

    https://www.savingforcollege.com/articles/the-impact-of-529-plans-on-claiming-a-dependent also suggests no IRS guidance.

    • This reply was modified 2 months, 1 week ago by  kaneohe.
    #4585
    kaneohe
    Participant

    Typical Student Dependent Support Issues

    suggests it is the student’s contribution.

    #4587
    47percent
    Participant

    Great links on the subject.

    Wow… What a frickin’ mess..

    The Journal of Accountancy link is from Mar 2012, and is quite dated. That itself says they are “still” waiting for IRS guidelines! Not sure of the date on the DSJ CPA write-up. Seems to be more recent.

    In any case, in the older articles the conservative case was to consider it as the student’s contribution as the goal was for the parents to claim an exemption.

    Now that the exemption is worthless, everyone will be trying to claim it as the student’s contribution to get the standard deduction. So, the conservative case is to consider it as the parent’s contribution!

    Maybe the IRS just intentionally wants to leave it ambiguous so that honest and risk-averse voluntarily choose to pay up.

    #4589
    kaneohe
    Participant

    How about that $500 credit for 17-24 yr olds? They have to be a dependent to get that https://www.marketwatch.com/story/even-your-20-something-kid-can-qualify-for-this-new-child-tax-credit-2018-08-27
    so you are trading that vs the std deduction if not a dependent?

    #4596
    47percent
    Participant

    Thanks. Wasn’t specifically thinking about this. But definitely need to factor this in.

    Betn 18-25, this may be useful for some years. But, I was thinking of using 529 funds and realizing cap gains by gifting to fully use up the std deduction for college expenses while also keeping myself poor for ACA reasons.

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