College installment plans and 529 withdrawals
What 529 withdrawals are permitted (tax free) when a university's installment plan's payments in one year are greater than the college tuition for the year?
The example: Let's say that yearly tuition is $50,000, split between $25k for the fall semester and $25 for the sprint semester. The university sends out a bill for $25k in June and another in January. Because I can't pay $25k upfront, I enroll in the university's installment plan (administered by a third party for an upfront $70 fee). The installment plan pays $25k in June, and charges me $5k per month for 10 months, starting in June.
So my payments for the year are $5000 for each month of Jun-Dec which totals $30,000. But the university only charged $25,000 for that period and that is what appears on my billing statement. (I payment of $25,000 also appears with a line item of "third party agreement."
How much can I withdraw (tax free) from the 529 plan during that year? $25,000? $30,000? If only $25,000, can I withdraw the remaining $5,000 the following year?
Answers | 3
While not directly related, see page 96 of http://www.gpo.gov/fdsys/pkg/CFR-2011-title26-vol1/pdf/CFR-2011-title26-vol1-sec1-25A-5.pdf (the 4th page of the PDF), in particular, paragraph In my case, the third party installment payment company is the eligible educational institution’s agent for purposes of collecting payments of qualified tuition, and related expenses. (At least I think so.) So it would seem that my payment to the third party company would be the qualified expense. (And in my example, I could claim $30,000 in qualified expenses in the first year.)