A quick course in 529 college savings plans
We are tapping our child’s 529 college savings plan for the first time and are confused as to what is a “qualified higher education expense.”
Obviously, tuition counts, but what about other fees, such as student body fees, health insurance and tuition insurance? We’re also trying to figure out how much we can withdraw to cover an off-campus apartment next year. The college website lists three food plans (with different costs) as well as room costs depending on whether the student is in a dorm or a college-run apartment on campus.
Answer: A fee must be required to be considered a qualified education expense for a tax-free 529 plan withdrawal, said Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting. The qualified fee can be required either to attend the institution or is required of all students in a particular for-credit course of instruction, Luscombe said. The
school’s business office can tell you what’s required and what’s optional.
This school year, while your student lives on campus,
you can withdraw an amount equal to the actual cost incurred for room and board. You can’t take taxfree withdrawals for other costs, such as dorm furnishings, groceries or restaurant meals. Next year, you can use the school’s official “cost of attendance” figures, listed on its website, which will set an upper limit on what qualifies as room-andboard expenses. The college may list different figures for dorm rooms, on-campus apartments, married or graduate student apartments or living at home.
“If more than one figure for room and board is listed in the COA, you could use the highest figure that would apply to the particular student’s situation,” Luscombe said.
Books, supplies and computers used for school are also considered qualified
education expenses. Transportation and commuting costs are not.
Claiming Social Security benef its
Dear Liz: My husband turned 70 in May and waited until then to take his Social Security. I am 61 and will qualify for a benefit based on my work history, although my benefit is substantially less than his. I understand I can take half of his benefit at my full retirement age of 67.
I asked a Social Security representative if I could take my (reduced) benefit at age 62 and then switch to half of my husband’s benefit at 67. She told me I should file at 62 and take half of his benefit at that time. That sounds too good to be true, and your article and others I’ve read disagree with
her advice.
Answer:
Social Security representatives aren’t supposed to give people advice about when or how to claim their benefits. But ideally they would offer correct information about your options.
Congress did away with most people’s ability to switch from a spousal benefit, which is up to 50% of their partner’s amount, to their own benefit. Now when you apply for Social Security, you’ll be considered to be applying for both a spousal benefit and your own benefit, and you’ll get the larger of the two. There’s no switching later.
It could be that your own benefit will always be smaller than your spousal benefit, regardless of when you apply. But that doesn’t mean it’s a smart decision to lock in a permanently reduced benefit by applying early.
AARP has a free Social Security claiming calculator you can use to explore the impact of applying at different ages.
Distributing funds from inherited IRAs
Dear Liz: You have referenced the relatively new 10-year rule that sets a deadline for distributing money out of an inherited IRA. You mentioned that surviving spouses are one exception to that rule. Are there other exeptions?
Answer:
Yes. The 10-year rule applies to IRAs of those who die after Dec. 31, 2019. Most non-spouse inheritors must empty an inherited IRA by the 10th year after the original owner died. If the original owners had reached the age where they were expected to take required minimum distributions, the inheritor also must take yearly distributions.
“Eligible designated beneficiaries,” however, have the option of taking distributions more slowly, typically over their own life expectancy. Eligible designated beneficiaries include the original owner’s spouse or minor children, people who are chronically ill or permanently disabled or inheritors who are not more than 10 years younger than the original account holder. Minor children will be subject to the 10-year rule once they reach the age of majority: 18 in most states.