Hi, all. Seeking some accounting advice. Our oldest son is headed to college this fall, and I’ve just made my first withdrawal from his 529 to pay his tuition bill. The question: how should I account for that 529 withdrawal? I see three options:
Put it in an income category. The concern with that is that it winds up double-counting the money in the 529 as income (i.e., it was counted as income when it was first earned and then it would be counted as income again when it comes out of the 529–that seems wrong)
Categorize it as a credit in the category that his tuition expense goes into. Then the expense would be offset by the credit. The problem there is that bottom line for the month would miss that we paid his tuition that month.
Categorize it as a transfer. Transfer out from 529, transfer into checking account. The problem with that approach is that is sort of the opposite of option (2): it’ll make look like we’re substantially in the red for this month because there will be no credit offsetting the tuition expense. In a sense, we are substantially in the red, but it’s being paid for by money that’s been specifically set aside to pay for it.
Any advice about using one of the above approaches or maybe some other approach that I haven’t considered? Thanks.
I think it’s hard to answer without knowing more about how you use your Tiller sheets, as well as how much you’ve saved for college. If you’ve saved the full amount, I might just make all tuition-related payments and 529 withdrawals hidden categories, since the income and expense aren’t really affecting your budget, and the money is just passing through. If I wanted to be able to track how much I spent but not let the large sums impact my other accounting and budgeting, I might make “college” a tag, so I can get a tag report at any time but just not have it otherwise impact my reporting. If you’ve saved a partial amount so that you’re cash flowing some of the cost, then I might make both the 529 “income” and the tuition payments both expense types in their own group, so that I can see the net expense hitting my monthly budget. E.g. If you’re making a $20k payment, and drew $10k of it from your 529 account, then it will show the net $10k expense.
Thanks, @Caroleen. We’re able to cover the entire bill with 529 funds. I think I came up with a another possible solution. I use the Savings Budget as my primary budget sheet. I may just add the amount of the tuition bill as savings in the category I’m using for the tuition expense. The savings will offset the tuition expense. Then I’ll just treat the movement of funds as a hidden transfer. I think that should work. Thanks, again.
Thanks. Hard to believe it’s here, and hard to believe that we’re now spending 529 money after so many years of diligently putting money into his account. Sure makes things easier.