Are Transcript Costs 529-Eligible Expenses? (Student is enrolled in the receiving school)

Financial Planning Tax Strategies
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The good folks at “paying for college” sent me here, based on this thread: Are Transcript Costs 529-eligible expenses?

To recap: my daughter has enrolled as a full-time student as an incoming freshman at The University of Tennessee, Knoxville (UTK) for the fall semester of 2024. In high school, she took a handful of classes that earned her college credit. UTK will not take her high school’s word that those classes earned her college credit and has asked for official transcripts from the colleges that sponsored those classes before it will acknowledge those classes as college-level courses.

Naturally, those transcripts have fees attached to them (payable to the local colleges that sponsored the classes). I’ve paid those fees. Are those fees qualifying expenses for the purposes of a 529 plan?

I’ve checked online and haven’t been able to find a definitive answer. I fully admit my Google skills might be lacking…

Thanks in advance.

Regards,
-Chuck

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After reading the section Qualified Education Expenses for 529s (aka Qualified Tuition Plans - QTPs) in IRS Pub 970 2023 Publication 970 (irs.gov)

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my take is that since the fees were paid to the local schools, not UTK, you the fees would have to be eligible expenses required for attendance at the local school(s). Since the local school did not require that you get transcripts as a condition of attending the local school(s), I think you’re out of luck.

For all 529 plan questions, you just need to go to www.irs.gov and search for Pub 970, or if you don’t remember the Pub number, search for qualified education expenses. That will lead you to Pub 970. No google needed.

AJ

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Thanks, AJ.

Still, if it gets her out of a few intro classes, it’s worth the hassle.

Regards,
-Chuck

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I’m curious how much these local colleges are charging you. In my neck of the woods (central NC), they are charging in the range of $5-10 for an “official” transcript. Not breaking the personal bank much, unless you need dozens and dozens of them. The small fees would more than offset any additional college courses they would displace.

Pete

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It’s not these particular transcript fees that’s the issue. It’s the totality of all the fees. I will have two kids in college starting this fall. My daughter’s college provides a summary total of expected fees, here: Cost of Attending UT: Undergraduate Student - One Stop Student Services . For out of state students like her, the posted estimated total is currently $2,552 per year.

My son’s school lists individual fees but I can’t find an estimated summary total for him at the moment. Assume for the sake of discussion that it’s in the same ballpark. That’s around $5,000 in annualized fees to cover both of them, on top of tuition, room and board, books and supplies, etc.

The money to pay those fees is available in their 529 plans, so whenever possible, I would prefer to ultimately pay it from that source. My practice has been to maintain a spreadsheet of all the 529-reimbursable costs I’ve been paying (different tab per kid and semester), including proof of payment and date. Once the relevant CDs mature (in the same calendar year as the relevant expenses, of course), I reimburse myself from the 529 plan, deduct my reimbursement from my running total, and keep my records around for tax filing and in case the IRS comes knocking.

Like most high school students, she didn’t pre-plan her life around getting through college early. So the classes she earned college credit for will only make a real difference if they help with some pre-requisite or gen-ed requirements that let her graduate a semester or more early.

I guess maybe, if she falls in the window of between “half time” and “full time” student as a second semester senior, there might be some relief then. Of course, if she goes through with her current degree/career program plan, it would be in her best interest to start taking masters-level classes instead of taking a “senioritis” class load.

When she was finalizing her college choice, we talked through the financials. Her second choice school was offering her enough scholarship money so that her 529 would likely cover most of a master’s degree in her currently chosen field on top of her remaining undergraduate costs. She chose a more expensive school where the 529 is not currently sufficient to cover 4 years of school, but there’s a path with a decent chance to get there.

Regards,
-Chuck

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Brief follow up — for my son’s freshman year, the direct bursar-billed fees were $2,678, and I have records of $200 of additional mandatory fees that were paid to the school and not bursar-billed. So the $5,000 in fees estimate across the two of them is likely in the ballpark — perhaps a bit conservative.

Regards,
-Chuck

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OK, I understand the concern with the “totality of all the fees” for sure, but I also understood your OP to be exactly about transcript fees when you asked:

Naturally, those transcripts have fees attached to them (payable to the local colleges that sponsored the classes). I’ve paid those fees. Are those fees qualifying expenses for the purposes of a 529 plan?

No?

Pete

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Why would I want to pay any bill twice?

The money is in the 529 plan, which means that I either deposited it into the plan for the purpose of paying qualifying educational expenses or that it’s the result of a positive return on an investment I made specifically to pay qualifying educational expenses.

In other words, if an expense is a qualifying one, money has already left my pocket at some point in order to pay it. If I pay a qualifying bill from another source of cash instead of from available 529 cash, then I’m effectively paying the same bill twice.

What you saw was a question on a situation that looked to me like an “edge case” where I couldn’t independently determine the right answer. What you didn’t see was the dozens of other costs — some bigger, some smaller — where I was able to make a determination.

Regards,
-Chuck

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As I read this thread your issue is not about paying a bill twice. Rather I see it as not wanting to pay a bill. Most people in the world like something for nothing. So you have lots of company.

The college has the position it wants proper documentation of course work accomplished. The folks who taught the course charge for that documentation.

It is not unlike having to pay county officials for birth certificates or death certificates.

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Fascinating perspective. Completely wrong, but fascinating nonetheless.

Regards,
-Chuck

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FWIW, I cannot understand this logic at all. Not the “I don’t want to pay the same bill twice” of course, but the “if I don’t pay it from my 529 account, I’m paying it twice”. It’s not like the funds in the 529 account magically disappear if they’re not used for that particular bill.

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I understand what the cumulative costs of an education are: I’ve experienced these personally and of course know many, many others who have had to account for these expenses.

My question had nothing to do with all the expenses of college. It was simply a question about what the costs of transcripts were from your local/community colleges. That’s it. And that’s what you asked about specifically in your OP (and in fact the title of the thread itself). There is no need for gaslighting and unwarranted assumptions.

Pete

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They don’t disappear. They are “restricted use” funds, however. Their primary purpose is to cover qualifying educational expenses. Only recently has an alternative use come forward, which is a limited ability to help fund a Roth IRA.

If not used for an allowable purpose, 529 funds are expensive to access, trapped behind taxes and penalties. So while not technically “gone”, they’re not really all that available for general use.

In addition, at a time when I’m shelling out a lot of money to get two kids ready to go off to college within a week of each other, it’s very helpful to know which parts of that spending can be covered from the 529 and which parts can’t. Because while the transcript fees aren’t the difference maker between “will my children go to college or won’t they?”, they are a difference maker when it comes to decisions around “how much can I spend on every other non-qualifying expense associated with getting them to school?”

Again, it’s not that these particular transcript fees are unaffordable or unreasonable. It’s about managing the totality of their college costs and putting as many of those costs against the special-purpose educational accounts as allowable.

Regards,
-Chuck

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I think it only matters if your 529 total funds are near or over what you plan on spending on college (the usual allowable items). For most people, it is below that amount, so whether or not a $10 fee (or a $50 fee) can be reimbursed isn’t really material because all the 529 money will eventually be used up for tuition and other allowable expenses before the kids graduate.

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And that’s exactly where we are. My current best estimate puts my daughter’s 529 close to, but not quite at, the point where it will cover her after-scholarship allowable costs for four years. With further contributions and assuming CD interest rates hold reasonably close to the college’s cost inflation rates, there’s a path with a good chance of closing that gap.

Frankly, though, this whole scenario is yet another reminder of one of my biggest financial mistakes… I neglected after-tax savings and investments to make the most use I could of “special purpose” accounts like retirement, college, and healthcare related ones.

So yeah, when I can, I make use of those special purpose accounts to spend on qualifying expenses. That’s mostly because that’s what those accounts are there for, and partially because I belatedly realized that mistake and am trying to protect the money I do have in “unrestricted, after-tax” funds.

Regards,
-Chuck

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The good thing is that the leftover money won’t go to waste under any circumstances. There are lots of ways to keep 529 money and use it in various ways even after the beneficiary has graduated without spending it all. Here’s an article I found about it. The transfer to Roth IRA option is particularly intriguing.

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If there is extra money left in the account and you to empty it out at the end of her undergrad, you can take out the equivalent amount to the scholarship money that was spent on qualified expenses without having to pay a penalty. You will have to pay taxes, but you will avoid the penalty.

Or, assuming that the current law remains in place, you can use the remaining balance to make contributions to her Roth IRA, if the account meets the 15 year age requirement and she’s been the account beneficiary the entire time. She would also have to meet the income requirements to make a Roth contribution.

Or you could always keep the account and change the beneficiary to a grandchild if they come along.

AJ

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