Can I take a 529 distribution now for a qualified education expense that I will incur later this same calendar year?
I think the answer is yes, but would like to confirm.
Thanks!
Yes…at year end your “qualified expenses” must be equal or less than your 529 distributions or you incur a 10% penalty and tax on gains. You also have 60 days to roll a 529 withdrawal back into another 529 plan is you overdraw…
So as long as both the expense and the distribution are in the same calendar year, it doesn’t matter which comes first?
To clarify: I can take a distribution now (January 2022) for tuition or other expense that I know it will be paying in August 2022?
I understand that if I overestimate the amount of tuition that I will pay taxes and penalty on the excess that os attributable to the earnings portion of the withdrawal.
That is correct…I keep a spreadsheet to monitor this with multiple kids in college and multiple 529 and ESA accounts…I usually withdraw more at the beginning of the year as I tend to be more cash flush in the fall…
Oh yes! I have lots of spreadsheets cause I also have multiple kids.
Thanks for the confirmation!
And I am reading mixed info online about if I can take a distribution in Jan 2022 for spring 2022 tuition that I naively paid in the last days of December 2021 instead of waiting until January 1.
Most sites say no but some note that the irs hasn’t really ruled on that. Sigh.
The IRS only cares if it matches for the year…just keep track of the numbers. I’ve also taken a distribution late in the year after I already paid the tuition out of pocket…
Thanks!
Any thoughts about taking a distribution in January 2022 for spring 2022 tuition that was paid in late December 2021?
I think the answer is no but some websites say it’s okay. But I can’t see how.
Distribution and spending need to be in the same calendar year from what I have heard.
The payment of qualified expenses (not the billing of those expenses or when the services were actually received) and the matching 529 distribution that is meant to cover those expenses must take place in the same tax year.
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Thanks!
We found the bursar’s office VERY accommodating when it came to the timing of a bill. I called (assuming the answer would be no) the bursar’s office because our bill was due in August but a third party partial scholarship would not be paid out until later in the semester (I guess they want to make sure that the recipient is not just enrolled- but actually showed up and taking classes) and the response was “Sure, what day would you like the charges posted?” I was flabbergasted. Didn’t need to talk to a manager, didn’t need to put it in writing, just explained what I needed and a keystroke later it was done. So I repeated that whenever there was a timing issue (like when Spring semester bills did not match the IRS calendar requirement) and they were more than nice about it!!! They post charges based on their own calendar, but I think within reason they want to help families maximize their 529’s.
Just ask. Easier to get an exception from the U than to argue with the IRS over when something got paid!