529 plan funds for high school dual enrollment computer need

[smgambill]

My child is taking some dual enrollment college classes while still in high school. A computer is required for the courses. Could I use funds from his 529 plan to purchase a computer as a legitimate expense?

[Carl]

I've read the pub, and from my interpretation, no unfortunately.

You can't claim it as a "higher education" expense, because the student doesn't qualify for such expenses yet. They won't qualify until they are

-Enrolled in a course of study as a full time student at a qualified institution that will lead to a degree or certification.

As a high school student, there's no way they are a "full time student" in that "course of study" that will lead to the degree or certification. 

Additionally, the purchase of a computer is not a requirement for high school. It's a requirement for a college course the student does not yet qualify for anyone to claim such expenses on.

IRS Publication 970 at https://www.irs.gov/pub/irs-pdf/p970.pdf page 50 starts the QTP/529 section. Second column titled "Qualified Education Expenses" That first paragraph starts:

Generally, these are expenses required for the enrollment or attendance of the designated beneficiary at an eligible educational institution. For purposes of QTPs, the expenses can be either qualified higher education expenses

You don't yet qualify to claim higher education expenses since there's no way they are a full time student at any college.

or, for amounts paid from distributions made after December 31, 2017, for qualified elementary and secondary educa-tion expenses.

The computer is not required for his elementary or secondary education.

You also want to be careful about using education credits before they are enrolled in college as a full time student. There are many tax credits you qualify for that you can only take for four years. While those credits have a maximum amount for each year, the credits are based on and limited to your out of pocket qualified education expenses. So if you use a credit in a year when say, your out of pocket expense is only $100 on a credit that has a max of $2000, then you only get $100 credit and that's flat out it. Then in the last year of college when you have that $2000 of OOP expense and "need" that credit, you can't use it, because you wasted it for a measly $100 in that first year.

[JPIII]

A CPA quoted in an article by US News in 2013 says that you can use 529 money for dual enrollment classes.

Pay for College Credit Via 529 Plans While in High School

By Reyna Gobel, Contributor |Aug. 28, 2013, at 9:00 a.m.

https://www.usnews.com/education/best-colleges/paying-for-college/articles/2013/08/28/pay-for-colleg...

Dual-credit classes: "Dual enrollment is when a high school student can take college courses at the same time as being enrolled in high school," says Bardwell. "Qualifications vary by college and high school, and some colleges will pay for the courses while others will not."

"I've had some students who spent their entire junior and senior year at a local college and basically completed two years of college while still in high school," says Bardwell. "Others just take a course or two, and now with online options, they do not even have to leave high school if they don't want to."

If the high school doesn't cover the costs of courses, parents can withdraw money from 529 plans saved for their kids' college education. "Tuition and fees for college courses, regardless of when they are taken, are always qualified higher education expenses," says Mike Fitzgerald, chairman of the College Savings Plans Network.

Jimmy Williamson, an Alabama-based certified public accountant and personal finance specialist, says that as long as college credits are earned at a federally approved eligible institution, money can be withdrawn without tax penalty from a 529 plan. Vocational courses taken at an eligible postsecondary school count as well, he says.

[Carl]

A CPA quoted in an article by US News in 2013

That was 5 years ago. Tax laws have changed since then, and they've changed drastically for the 2018 tax year. Take note also that US News is not a tax authority. When it comes to federal taxes, the one and only tax authority is the IRS. The only legal entity that can rule on IRS authority, is a federal judge. A lower level judge can not. US news and anyone else can interpret the law any way they want. But the only interpretation that holds any weight is that of the IRS, and a federal judge if said judge over rides the IRS interpretation.

Now while the quote is correct for 2018, you will not qualify for any other education credits (such as the American Opportunity Credit) because the student is not enrolled "full time". They can't be a full time college student, if they are already a full time high school student.

But even if you do qualify for any credits, it would be foolish to take those credits prior to the student graduating high school and enrolling as a full time student in college. Some credits, such as the American Opportunity Credit (AOC) can only be taken for four years. So if you take that credit prior to the student formally enrolling in college, that means you will not get the credit in the student's final year of college when you will be spending the most money, and will *need* that credit.

With the new tax laws for 2018, 529 funds can be used for any education K through 12, as well as college. Just don't waste a college tax credit while the student is still in high school.

Finally, in order for the 529 withdrawal to be tax exempt, that money must be spent on qualified education expenses in the same tax year it is withdrawn. There are no exceptions to that.

[JPIII]

“Now while the quote is correct for 2018”

I’m glad we agree.

[Carl]

One has to be wary of 3rd party sources when it comes to taxes. When one starts out "according to the IRS..." it more often than nought means "the way I read the IRS rules is....". So that's why there should always be a citation in such a highly distributed public publication such as US News & World Report.

While a majority of the IRS pubs that matter to me are pretty clear, there are just as many out there which are more of a "grey area" because they can be interpreted in more than one way. When I run across those (which is rare for me) I usually go looking for case law to see if it's already come up in the U.S. Federal tax court. If it has, then the judges ruling is the one and only correct interpretation. If it has not been addressed in tax court, then I tend to lean more in favor of the IRS in those grey areas, since I don't have the money to take the IRS to tax court over it.

You can check out the website yourself if you want, at https://www.ustaxcourt.gov/  When I'm looking for clarity on something I usually start under the "opinions" tab, as that will usually help me find the keywords I need to find a closed case or docket number on whatever it is I'm needing clarity on.

[Texan Saver]

I wonder if the tax code has changed since the original post. I read through the tax code that was supplied in the link and I didn't see a requirement for the student to be enrolled full time to qualify for a computer to be an eligible expense. I did see a requirement that a student be enrolled at least half time to to qualify for room and board.

To me it seems by reading the tax code a dual credit enrolled high school student could by a computer as an eligible expense. Maybe I am not reading the code correctly because this is not my area of expertise.

[NCperson]

If you read the left side of page 52 from the 2018 version, it reads identical to the 2017 version.

Further, i can not find where @Carl is referencing that
-Enrolled in a course of study as a full time student at a qualified institution that will lead to a degree or certification.

if you read the left side of page 52, it appears clear that a computer is a valid expense as long as the student is enrolled in a post secondary school (look at section 4); I do not see where the expense is limited to a half time or full time student.

However, it is limited to post secondary school enrollment as high school enrollment only pays for tuition

;The preable to this section states that some expenses are limited to half time (e.g. room and board) but it never limits the computers to a half time or full time requirement.

so unless there is another reference that I am missing, I would use QTP money for a computer as long as the student was enrolled in a post secondary school and it was a requirement of the school, regardless of how many courses per semester the student was taking

[ajonline]

If the student is on track to achieve enough credits for one to two years of college, what 4 year college expenses are you anticipating unless your student is going to go to college for 4 years to earn 2 1/2 years of credit? If you have legitimate expenses in a period where your student is earning college credits you should use your saved money as planned. 

[Hal_Al]

Simple answer: yes, the purchase of a computer is a qualified expense for a 529 plan distribution.

There appear to be two issues in your question:

1. Does dual credit courses count? That question is academic starting in 2018, as 529 distributions can be used for qualifying expenses for K-12.

2. Are computers a qualifying expenses?  The rules are loser for 529 plans than the education credits. Computers must be required by the college for the credits. You'll find no such restrictive wording under qualified expenses for 529 plans.

Just do it.