This fall was my first year with the 529 and I think (hope?) I did it right. I paid $4000 of tuition directly from my checking account then paid everything else the school asked for out of the 529. Child rented textbooks from Amazon which I paid for out of my checking account. I presume I contact the 529 folks and ask them to reimburse me directly for those book expenses. Is there a time limit? For instance, it is January 2016 now and the expenses were incurred August/September 2015; is it too late to recoup those costs?
If there isn’t a time requirement, I could see a benefit in not requesting the reimbursement until the end of the four years of college, to allow those dollars to grow tax free.
May I add to this original question a related one of my own? Our son is a college freshman, and we ordered many of his Spring term textbooks on Amazon. One or two we ordered in very late December; the rest we ordered in early January. I have kept the receipts and just filed a claim for reimbursement from our 529 for all of them. As there wouldn’t have been time to file the claim and have the money we spent ordering books on December 30th reimbursed in 2015, are those textbooks receipts not eligible for 529 reimbursement in early 2016? And I guess, if the answer is yes, then in future years we should wait until after January 1st to put in our textbook orders for the spring term. Is that what others do?
@profparent, sorry I don’t know what you would do in your case as far as 529 reimbursement goes.
But if you can’t get reimbursed for the 2015 book expenses from the 529, you could claim the book expenses for the American Opportunity tax credit together with other qualified education expenses like tuition, fees (that were not paid with scholarships/grants or 529 funds).
Yes, unfortunately the 529 rules sometimes are non-sensical or overly restrictive. The IRS is overburdened and may not ever look at a small lapse like you describe. But to play it safe, I always match up payment of the expense and the 529 distribution for reimbursement of that expense in the same calendar year.
Thanks @mommdc and @BelknapPoint. That’s what I feared, and we’ll know better next year. I don’t really know what I was thinking, because I at least knew enough to file for immediate 529 reimbursement of the Spring term R&B bill I received and paid in November. I was just so busy worrying about the textbooks arriving in time before the semester began that I wasn’t paying attention to tax dates. Lesson learned, and we’re not talking about a lot of money here-- just a couple hundred at most.
If you did not withdraw the money by Dec 31, it is too late now. However, you may be able to claim tax credit on those your pay out of your pocket directly. For my 529, they don’t really care how I apply the money on qualified expenses. I just withdraw the amount I want (instead of reimbursement for specific item). Last year, I request a 529 withdrawal directly for my D’s school bill but it almost passed 12/31 before the money that was entered into my D’s account to be qualified for 2014 expenses (as the bill for winter term came out in mid December and the 529 account took 10 business days to process a check. This year, I just did direct deposit transfer from my personal account to school and request 529 withdraw to myself.
Just to be sure you understand, it doesn’t matter when you are billed, what matters is when the expense is paid. If you are billed for spring tuition in November, you can pay that bill in January (disregarding for now whatever payment deadline the school may have) and take the distribution from the 529 for that expense anytime in January or the following 11 months.
@BelknapPoint, I was following the college’s payment deadline, so I paid the bill in late November/early December for the Spring R&B and made sure to withdraw that amount from the 529 immediately after, knowing that I probably needed to keep payment and reimbursement in the same calendar year for tax purposes. But when it came to ordering the textbooks on December 30th, I apparently had a brain cramp and didn’t remember to think about that issue. But yes, if I had waited until January to pay for the Spring R&B I know that I could then tap the 529 any time in 2016 to get it back.
It only matters if you have a lot in the 529 and your kid is graduating soon. You can always leave the money there for the next bill. For us, the total saving in 529 is only enough to cover half of our out of pocket cost anyway. If it was not claimed last year, it will be spent in the future.
Good point, @billcsho. We do have a lot in the 529 (more than we will end up using since DS has a scholarship that covers most of his tuition if he graduates in four years), but we are at the beginning of this journey and don’t know for certain how much he will end up needing. So there is indeed time for future claims.
Don’t forget it is transferable and can also be used for graduate school. If there is any left over, save it or a grandchild. You actually better off max out your tax credit eligible out of pocket expenses and save the 529 fund.
