So the title says it all. We didn’t know if my DD would get a co-op or not so I went ahead and paid my part of her tuition bill with 529 $. I had the check sent from the account directly to the school. DD has a hold on her account with the school so that credit’s aren’t returned to us, the money would just sit in DD’s account until the next semester.
Can anyone see any problems doing it this way? I was’t sure what the tax repercussions would be if the money came back to us and then we put it back in the 529. I figured they might as well keep it as I’ll need to turn around and pay again in December. Any problems with that? Thanks
Yes she does have all those things twoinanddone but not for as much as what I paid for tuition so there will still be a credit left on her account. I’d normally send in her spring semester payment at the end of December so I could still get it in the same tax year so that’s why I was thinking it would be ok for them to just hold in the account. They might not apply the money to her bill until Jan, I can’t remember how that works?
This gets into a tricky area of the 529 rules. You need to take the 529 distribution in the same calendar year that the qualified expenses are paid. There’s a recent change to the 529 rules that allows for a penalty-free re-contribution to a 529 within 60 days of receiving a refund of 529 funds for reasons such as overpayment, withdrawal, etc.
It should be ok. I applaud you for wanting to do it “right”. Just document the facts (paid tuition date, coop offer date, etc) and present them honestly if you are audited. Probably better for the school to hold the funds for a few months than to go through the hassle of trying to redeposit in the 529 plan. Most schools will allow you to pay 2nd semester tuition in December to line things up for tax purposes.
But make sure the school will hold the fund. i know D’s school would return them at a certain point in the semester if there is a credit balance. Since the OP said the funds are not returned to her, this could be an issue if they were returned to the 529 fund outside the 60 days, and OP then didn’t pay for spring by the end of the tax year.
Ok checking back in with an update. The school refunded the $ back to my d’s bank.
And of course being the spazz that I am I set up a contribution to her 529 from her bank account. I’m trying to get her FAFSA done and don’t want the excess funds in her account.
In retrospect, I should’ve came here to ask first! So tell me dear people will all be well or did I make a mess for .myself?
I’m so mad there had been a hold on her account and now it’s gone and the lady on the phone said there were no notes on the account, grrr.
Editing to add we still plan to register and pay for spring semester in DECEMBER! I will have the funds sent from the 529 to the school again.
I’m not that familiar with 529 plans, but if you can match up the total withdrawals this year with the qualified (for 529 account purposes) expenses, then you would be ok, right?
So would you be able to pay the spring bill and have it posted to her account in December?
Yes we only had to pay $125 for her coop, and with what came out of her 529 and what went back in it adds up to the 125.
And yes I SHOULD be able to pay for Spring in December. Who knows they say one thing and then another thing happens no matter how many times you check and double check.
I’m still mad that money was refunded to us. I called 2 different times weeks apart. There was a hold on the account, I saw it. It was also there the 2nd time I called to check. Then I got comfortable and didn’t look at it again and poof now it’s gone.
Whatever, I guess I just don’t want to run into any trouble, but I’ve got print outs and everything documented just don’t want the hassle or stress of any type of audit.
I think mommdc is asking if the recontribution to the 529 was made within 60 days of when the school issued the refund. If that’s the case, then there are no worries. As far as the IRS is concerned, there never was a distribution in the first place, as long as all of the money from the original distribution was refunded by the school and recontributed to the 529 within 60 days of that refund.
Edited to add: the $125 from the original distribution, if used for qualified expenses, isn’t a factor.
Oh the school issued the refund on 10/18 and I sent it back to the 529 the same day, and it was officially received back in the 529 account today the 19th. So I’m good? I thought you meant the money had to go back in the 529 within 60 days of it first coming out.
