How do you track payments from a 529 college savings account?

Spyros

I have a 529 college savings plan set up as an investment account. I need help understanding how to record a payment to my kid's college as an expense.

In a normal investment brokerage account, when I sell shares the funds go into a cash account, and then there is a 'withdraw' transaction that transfers to my checking account as a deposit. I can then issue a check to a payee, which I categorize as an expense.

However, in a 529 account, the funds do not go to a cash account when sold, they are sent directly as requested to the educational institution. So when I download the transaction into Quicken it shows up as a "shares sold" entry, reducing the share balance but that is all - there is no 'cash balance' in the fund and no way to create a transaction that shows where the cash raised went. So how do I track payments to the college?

Thanks for any pointers!

Tom Young

This is a puzzler, in a variety of ways.

By any chance did you set up this Account in Quicken as a single mutual fund-type Account?  That setup would result in no cash ever being shown in the Account, but, typically, every "cash" event - a deposit followed by a Buy or a Sold followed by a transfer out - would required an entry into a checking Account as the offset to the Buy or Sold action.  It seems like the sells, somehow, are being entered with the offset into the same Account as the Sold action.  If you "Edit" the Sold entry are you seeing that to be the case? 

Assuming, for the moment, that there's no way around the problem by anything you can do within the 529 Account itself, then a work-around would be along the lines of:

1. Within your checking Account or, if you don't want to make entries in your checking Account, then within an new Account that you set up for this purpose, make a "deposit" in the amount of the proceeds from the sale, with the offsetting "Category" being the same Account in which you are making the entry.
2. Then, expense that same amount as a payment to the college, leaving the balance in the Account unchanged.
   

Spyros

Thanks, Tom.
I set up the account in Quicken using the Add Account feature, and selected 529 account as the type. After putting in the online instructions, I downloaded, and that is what I saw.
I just came up with a workaround that is similar to what you suggest. In the investment account, Quicken shows the proceeds of the sale going to the same account, but since there is no cash balance it simply disappears. I changed that manually to record the proceeds into my checking account, and the cash shows up there. Then I record the payment to the college in the checking account. Seems to work, in that the share balance in the investment account stays correct, and the balance in the checking account stays correct. Just a bit odd, in that the checking account has one deposit and one withdrawal that the bank does not know about. I can live with that, however.
Thanks for your suggestion!

Tom Young

"I set up the account in Quicken using the Add Account feature, and selected 529 account as the type. After putting in the online instructions, I downloaded, and that is what I saw."

So it appears that you weren't tracking your funding of the Account in Quicken?  I have a 529 Account for a grandchild that I'm funding and entering manually, and the "cash" aspect of all transactions - deposits and buys - are showing up "as they should", so I couldn't understand how the reverse activity - sells and withdrawals - wouldn't work the same.  The only logical answer was that the sells were being offset into the same Account.  Pending your answer to the question if that was in fact what you were seeing I suggested the work-around assuming the answer would be "No", but of course the "best answer" is the one that it appears you followed: edit the downloaded transaction to show the cash showing up in your checking Account.

" Just a bit odd, in that the checking account has one deposit and one withdrawal that the bank does not know about." 

Since the two transactions - deposit/payment - cancel one another out it really has no effect on the Account's balance though they do create "phantom" entries that nobody will ever be able to track in Real Life, and that is mildly confusing.  That's why creating a new "clearing" Account on your balance sheet where those two transactions "occur" is a slightly better approach.

realworldChris

"I set up the account in Quicken using the Add Account feature, and selected 529 account as the type. After putting in the online instructions, I downloaded, and that is what I saw."

In my situation after setting up the 529 account, the 529 account does show a 'Securities Value' and a 'Cash Value'. That is, when a transfer is made to the 529 account, Quicken doesn't 'know' what security, price and shares were transacted. Deposited money shows as 'Transferred Cash In (XIn)' until you reconcile with the statement.

To record a payment to a college, I entered two transactions.

1. A 'Sold' transaction for the security, price and shares. This resulted in a cash balance in the account equal to the amount paid to the college (assuming 0 beforehand)
2. A 'Write Check (WriteChk) transaction for the cash amount, categorized appropriately - e.g. 'Education:Tuition'. This reduces the cash balance back to 0.

Near as I can tell, this sequence results in the expense showing up properly in Expense reports. I added the memo 'Qualified Withdrawal to Educational Institution' which matches the IRS tax language.

Hope that helps anyone looking for this (like i was)