<p>I'm not sure if this has been discussed before but I couldn't find the answer to this question. I have a Coverdell and a 529 account for my S who is in his freshman year. Between financial aid and distributions from the 529 and Coverdell, his qualified education expenses are pretty much covered for the Fall semester. My problem is that payments for the Spring semester are due on January 2nd. I plan to take another distribution from the Coverdell to cover some qualified education expenses in the Spring. In order to have this payment applied in time, I would have to take the distribution in December. Does that mean that the distribution would be taxable because the qualified education expenses I am using it for are in the next year? Is there any way to avoid this?</p>
<p>The timing in your case could be a problem, as that January 2nd due date for the spring semester leaves no time to request the distribution and then pay the bill in the same calendar year.</p>
<p>My bet is that the school will understand if you ask to pay a week or so late, so that the distribution and payment can both happen in 2015. With the prevalence of Coverdells and 529 accounts, they should be familiar with this. At a presentation I attended given by the college’s “money” people, I asked if there was flexibility in the billing due date for just this reason, and the response I got was “absolutely, we know how that works.”</p>
<p>I will try speaking to them but I don’t get the impression they are that flexible. I’m surprised the IRS does not allow you to use expenses in the first three months of the next year as with some other things.</p>
<p>It’s when you pay the expenses, not when they are due. If you take the distribution in December and pay in December then you have enough expenses paid in 2014 to not pay tax/penalty for 2014. If you pay by check for example and drop the check in the mail on December 31st, that expense is deemed to have be paid in 2014. If you have the cash flow, the alternative is to pay in January with other funds and take the distribution later in January reimbursing yourself for the expenses.</p>