Distribution from 529 now for tuition paid in 2012

Parents Forum
1

<p>We paid son's tuition with cash last year because the 529 was doing pretty well. Now we are worried about the market and would like to take out the amount we paid in cash last year. Is this possible without serious tax implications? I can't tell from looking at the IRS publication.</p>

2

<p>Did you take any tax deductions for paying cash?</p>

<p>I dont think you can take it out in a different year.

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3

<p>IRS Pub 970, Chapter 8:</p>

<p><a href=“http://www.irs.gov/pub/irs-pdf/p970.pdf[/url]”>http://www.irs.gov/pub/irs-pdf/p970.pdf&lt;/a&gt;&lt;/p&gt;

<p>In order for the earnings portion of a 529 distribution to not be taxed, the expenses need to be incurred in the same tax year as the distribtution. You would owe normal tax on the earnings portion plus a 10% additional tax.</p>

4

<p>Thanks. I just submitted similar question to financial aid forum.
Is there anything wrong with me taking money out now and paying for spring semester in late December? I’m worried the market may tank and we already lost much of what we put in once several years ago.</p>

5

<p>Yes, if you pay for spring in December it will be the same tax year. Note you can’t use the same expenses to not pay tax on 529 distributions as you use for an education credit such as the AOC. But 529 funds can be used to pay for room and board for students who are at least 1/2 time. And you only need $4,000 of expenses for the maximum AOC.</p>

6

<p>Thank you. I don’t think we qualify for the AOC, so we’re good there. I’m also trying to see when I actually paid his tuition for this spring. I’m hoping it was January, but I suspect it was late last December.</p>

7

<p>It’s more than just tuition. For 529 distributions it’s tuition, mandatory fees, required books and supplies and room and board. If he bought his books in January, you would at least have that if you have receipts.</p>

8

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<p>That is what we have done in the past. I try to make sure the college actually cashes the check in December, too – I withdraw the money in Nov so I have it ready as soon as the tuition bill hits my mailbox. Gotta time it because of winter break… apparently D2’s college does NOT work over winter break (D1’s college had someone come into the billing office and deposit checks on the first working day after Christmas, D2’s college billing office is completely closed during winter break). Just don’t want any hassles with the IRS!</p>

9

<p>If you are worried about the market, why don’t you just alter the investment within the 529 plan. Mine are all in a money market vehicle right now waiting for the stock market to crash.</p>

10

<p>I don’t think we have a money market option but I will check first thing tomorrow or Tuesday.</p>