Our son is in his senior year of undgrad and I am looking to apply the remaining 529 funds to either his 2022 expenses by withdrawing now or wait until sometime in 2023. If we use for 2023, can we wait until Nov/Dec 2023 to withdraw and reimburse ourselves for the Spring term expenses if he graduates in May 2023? It seems we could do that since the withdrawal would fall in the same tax year. Maybe with any luck, the market will have recovered a little by then! Or does it flag something if we withdraw AFTER he graduates?
I’m not a CPA but I think your student must be enrolled to withdraw penalty free. Also, try to withdraw and match the expenses in same year. I’ve had to watch this with S20’s co-op semesters.
Leave it for grad school?
It’s not worth the penalty to wait for a recovery… are there younger siblings in the equation?
It is not a matter of not having enough expenses to match up- we can make it work in either 2022 OR 2023 but was just curious given the market if we could wait as long as possible into 2023. We could transfer to a sibling as well who will be a Freshman Fall 2023, but just didn’t want to revisit the whole possible impact on CSS/FAFSA scenarios of that. Maybe it is safest to use while our '23 grad is still enrolled- all I could find was the tax year had to match up so I thought we could possibly withdraw later in 2023 without penalty.
That is what we are thinking. We are withdrawing 529 funds as we use them to pay for university.
We did this also. One daughter graduated right on budget. The other graduated way under budget. We are using the left over to help to pay for a graduate program.
We did this too, except in the other direction. It is quite easy to transfer 529 funds from one sibling to the other.
Strictly speaking I am pretty sure that it is also okay to wait for a grandchild. However, this could take quite a while in many cases, and might not happen.
Yes - same calendar year is fine, just can’t exceed the applicable 2023 fees/expenses.
If after the expected 2023 expenses there are still funds, then its best to take those in December 2022 to apply against 2022 costs.
Thank you DD! That is what I assumed based on reading that the withdrawl needs to match the expense year which for a May 2023 grad would mean we actually have from Jan-Dec 2023 to withdraw and to match with his Jan-May 2023 expenses.
There is not a risk of excess of funds (unless the market did something really crazy! and in worst case we could transfer to his sibling but we don’t want to impact his assets/income at this time)
I concur with DigitalDad; you can wait until the end of 2023 to take a 529 distribution for qualified expenses paid in 2023, even if the student is no longer enrolled at the end of the year.
Perfect -makes sense. Thank you as I could not find any specific info on that but just reading between the lines.
I agree with others and your initial assumption that withdrawing funds in the same year is fine. The student does not need to be enrolled.
Re: your concern about FAFSA/css accuracy issues if you transfer to a younger sibling, you could also leave the funds in the 529 until the younger sibling is a senior and change the beneficiary at that point.
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