<p>I am allowed to make a tax and penalty free withdrawal from 529 now for the room & board expenses for Fall of 2012? This is an expense not covered by Grant/scholarships.</p>
<p>Thanks.</p>
<p>No, the withdrawal must be taken in the same tax year as the expenses that the withdrawal is covering were paid.</p>
<p>Thanks. That clears the question about Fall term.</p>
<p>What about the same expenses for the next (Winter) term? College posted the expenses on 12/5/12 & 12/11/12, it was paid (using stafford loans) on 1/1/13. Am I allowed to withdraw tax and penalty free for those expenses? Again, these expenses were not covered by tax-free money. I am confused because the expense posting date and payment dates are in two different years. Thanks.</p>
<p>When is winter started? If in 2013, I think you could use 529 to pay for room/board.</p>
<p>It’s when the expenses are paid, not when they’re posted on your bill. An expense can be posted in Dec., but if you pay it in January then the 529 disbursement also needs to be in January (or anytime in that calendar year). If the expense is billed in December, don’t pay it in Dec. expecting to take a 529 withdrawal in Jan. to reimburse yourself… then you get outside the calendar year the expense was paid.</p>
<p>Colleges on a quarter system frequently post the winter term bill in December, and have a very early January due date. If you must pay it before the end of the year, and you want the 529 disbursement you need to estimate what the cost will be and take the disbursement out earlier. Best bet, I think, is to hold off paying until Jan. 1 and take the disbursement out in the new calendar year as a reimbursement.</p>
<p>if the expenses were paid by a Stafford loan, and not out of your pocket, then you can’t take a 529 withdrawal to cover those expenses.</p>
<p>Agree with all above. You have to plan in advance to have the 529 monies submitted prior to enrollment. You can’t pay and then say: “okay reimburse me”. 529’s don’t work that way. The paperwork to withdraw for the upcoming semester/quarter, takes a little time and there can be errors, so the key is to plan at least 2 months before you want 529 to pay for those expenses.</p>
<p>That’s incorrect AB, you can pay and then say “ok, reimburse me”. The money doesn’t have to be withdrawn prior to the semester. You do, however, have to plan so you are reimbursed within the same tax year.</p>
<p>MomCat, do you have an IRS reference for that? I can’t find anything specific in Pub 970 but this seems to say you can:</p>
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<p>[Kiplinger</a> - Interstitial](<a href=“http://www.kiplinger.com/article/college/T014-C001-S001-529-funds-for-college-expenses-not-college-debt.html]Kiplinger”>http://www.kiplinger.com/article/college/T014-C001-S001-529-funds-for-college-expenses-not-college-debt.html)</p>
<p>AD, our 529 office in Calif, asked specifically for the upcoming expenses to align with the quarter being paid for. They didn’t reimburse and it was a timing thing to align with current expenses.</p>
<p>Perhaps specific 529 plans could have limitations of their own but it isn’t an IRS requirement that expenses be paid directly or the funds distributed in advance. Is this ‘529 office’ a state entity or are you referring to a department in the investment organization?</p>
<p>State entity.
Dd’s grandfather had a heck of a time trying to withdraw for her expenses for 2012, late fall-books, lab fees, etc., so he aligned for winter quarter and had the 529 office submit monies for winter quarter tuition.</p>
<p>Annoying dad- oops, my bad. I read the QTP section of Pub. 970 closely (should have done so last night, but it was late) and you’re right, it doesn’t say anything about loans.
Guess I was thinking about it like the AOC - that you use the account to cover or reimburse yourself only for expenses that were paid out of your pocket. Turns out that’s not the case - you DO subtract out tax-free scholarships to figure Adjusted QEE, but you don’t have to subtract out loans. Sorry that I messed up here - I’m usually more careful. :-(</p>
<p>(On edit, my thinking was even more messed up than I first realized, since for the AOC loan amounts do count as “expenses paid by you”, whether in the dependent student’s or parent’s name. Eek! I plead fuzzy brain due to doing the FAFSA and Profile for two kids yesterday, plus a couple glasses of wine with dinner!)</p>
<p>Re: loans and 529 plans-- it does need to be mentioned that you can’t use 529 funds to pay off student loans in subsequent years, i.e. after the year in which the student graduates,since that would NOT be the same year as that in which the QEEs were incurred.</p>
<p>Aretha, re: your 2nd question, you should be able to use the amount paid to the account on Jan. 1 for a tax- and penalty-free 529 withdrawal in 2013.</p>