Using SMART529 for qualified higher education expenses

Financial EducationSMART529
Jul 28 2015

By Amy Hamilton, SMART529

There are several tax advantages in using a SMART529 account for higher education. Among them are tax free distributions for qualified expenses.  As your student prepares to enter college, be sure to track their expenses for tax purposes.

 

Qualified expenses typically include tuition, fees, room & board, books, supplies and equipment required for attendance.  Each higher education institution should be able to provide you with a cost of attendance budget.  This is usually available on the school’s website or from their financial aid department. This budget describes the costs for students attending the institution. They are generally broken into categories- students living in a dorm, students living with their parents, and students living off campus (apartment, rental home, etc).

 

Paying attention to the cost of attendance budget will help you avoid taking too much money each semester. It is possible to take more than one distribution per semester which will help as tuition payments, books etc. may be due at various times. Be sure to realize not all expenses your student acquires are 529 “eligible” expenses.  

 

Savingforcollege.com points out the following expenses that are not included: 

  • Insurance, sports or club activity fees, and many other types of fees that may be charged to your students but are not required as a condition of enrollment
  • A computer, unless the institution requires that students have their own computers.
  • Transportation costs
  • Repayment of student loans
  • Room and board costs in excess of the amount the school includes in its "cost of attendance" figures for federal financial aid purposes. If your student is living off campus, ask the financial aid department for the room and board allowance for students living at home with parents, or living elsewhere off campus, as the case may be. If the student is living in campus-owned dormitories, the amount you can include in qualified higher education expenses is the amount the school charges for its room and board.    

SMART529 does not require you to turn in any receipts for expenditures. But it is a good idea to track all your expenses, keep receipts and cancelled checks/bank statements in case you are ever audited by the IRS.

 

For more details on qualified education expenses, see IRS Publication 970 or your financial professional. If you would like additional information on SMART529, visit www.SMART529.com, or call the SMART529 Service Center at 1-866-574-3542.

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