FundRobot » Money Funds » Is it likely that I would get audited for this?

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Old   #1 (permalink)
 
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Default is it likely that i would get audited for this

So I have a college fund from my grandpa, but it is through the government. I am allowed to get money from this fund put into my checking account for living expenses, which must be calculated for the cost of living ON CAMPUS. I am not living on campus, but my stockbroker said that is fine; however, I will still get the amount for living on campus. The amount allotted for rent is about $500 (I will owe about 500-600 for rent where I chose to live) and the amount allotted for food is about $400. I highly doubt that I will spend that much money on food, especially because I have a roommate who is also contributing for the bills. My stockbroker said to make sure I keep ALL receipts, even for food, in case I get audited. My question is, what will happen if I do not spend that amount on food each month? Would I get in trouble if I get audited and they see that I put the extra money towards rent or other bills? Thank you so much for your time!

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Your description is talking about taking out money from a 529 plan. Eligible expenses include room and board. If you spend less than $400 on food *and* still take the money out of the account, that portion is a taxable distribution. However, let's say you spent $300 on food (easy to do--that's what I spend and I eat out a lot). That's 1/9th of the $900 distribution times the earnings. The earnings are rarely more than half of the total. So you might have to add $50 back as income and pay $10 in tax and penalty.

From publication 970:

3. Expenses for room and board must be incurred by students who are enrolled at least half-time. The expense for room and board qualifies only to the extent that it is not more than the greater of the following two amounts.

a. The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period
and living arrangement of the student.

b. The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution.

You will need to contact the eligible educational institution for qualified room and board costs.
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Default is it likely that i would get audited for this

529 College savings plan for this purpose and time.
Earnings are not subject to federal tax and generally not subject to state tax when used for the qualified education expenses of the designated beneficiary, such as tuition, fees, books, as well as room and board
IRS Publication 970, Tax Benefits for Education.
Hope that you find the above enclosed information useful. 06/11/2014
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Default is it likely that i would get audited for this

if you are allowed X $ for lodging and X $ for food, you need to have the receipts to show that you paying what you are being awarded,
if you spend less for one or the other but take the money it is income to you
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