<p>I read here about people being audited for use of 529 funds for tuition, and that the withdrawal and use have to be in the same year. What if I withdraw funds the last week of 2009 in order to cover a tuition bill for spring, 2010 that is due on 1/1/10? Is that a violation of the same year rule?? Thanks for any help.</p>
<p>Since the spring bill was due this year I don’t think it’s a problem. However, you might want to post your question on the FA & Scholarship forum too.</p>
<p>I can’t find anything but **proposed **rules that withdrawals for one year needed to be used for tuition due no later than three months after the beginning of the next year. I think that if you PAY in December for Jan 2010 there’s no problem. To better match the expense with the withdrawal you may wish to have the 529 plan pay the college directly.</p>
<p>I think common sense would prevail here. If the bill is received in Dec. and is due Jan. 1st (which is a holiday), then pay the bill in Dec. The point is that you are being billed in Dec. Payment is late if you pay it after Jan. 1st (and technically it would be difficult to actually have a payment processed on the 1st since most people have the day off), so I’d say go with the obvious: You receive a bill in Dec., you pay it in Dec. The fact that the term itself occurs in 2010 doesn’t change the fact that you were billed by the university in Dec. 2009. Anyone would expect you to pay that bill, and presumably pay before the deadline.</p>
<p>But then, this is just my non-expert opinion. I had this same question come up with a student I am helping out with college apps. I have to believe that there is some allowance for these issues that happen right on the bubble. That “within three months” thing sounds like it’s addressing the same question.</p>
<p>The year of the withdrawal and the year of the expense needs to match up exactly. You can’t pay a bill due in January by withdrawing from a 529 the December before. Can you pay the bill on 12/31/09? Or pay on 1/1/10 (a holiday) with your own funds and then reimburse yourself in the exact amount of the tuition with a withdrawal the next week? Since the dollars match up exactly, I’ve withdrawn funds from a 529 after the fact.</p>
<p>I’ve always withdrawn in Dec and paid the bill in late Dec/early Jan for the spring semester. Never had any questions from the IRS. Never even occurred to me that it could be a problem.</p>
<p>Just withdrew the last of S’s 529 money to pay for spring semester, the money arrived here on 12/15. The bill had arrived on 12/11, due 1/6. I’ll probably pay it right after Christmas and I won’t waste one second worrying about whether the year “matches up” or not. This is how 90% of the colleges in the US work, there’s no way the IRS is going to hassle you about a withdrawl that is less than 30 days from when the bill is due for the following semester. </p>
<p>If this were a problem the 529 investment firms (e.g. Fidelity) would warn you about it in their literature.</p>
<p>There was just an update from another poster regarding the IRS hassling him about 529 withdrawals. It all worked out, but better to avoid this if possible.</p>
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<p>[Avoid</a> these 529 withdrawal traps](<a href=“6 Top 529 Withdrawal Mistakes to Avoid”>6 Top 529 Withdrawal Mistakes to Avoid)</p>
<p>That supports what I thought was the common sense answer: Get a bill in Dec., pay the bill in Dec.</p>
<p>The quote from the above post, “the withdrawals you take from your 529 account must match up with the payment of qualifying expenses in the same tax year”, says the payment of qualifying expenses, not the deadline for payment due (in this case, Jan. 1st) so naturally it makes sense to pay it in Dec.</p>
<p>If I take a withdrawal in July 09, and another in December 09 that’s all in 2009. And if I paid tuition the previous January (09), and again in August (09), that’s all in 2009. The withdrawal will match up to the qualifying expenses paid in that year, at least in the middle years of withdrawing. And actually, since most people’s first withdrawal is in July for an August payment, this should not be a problem. </p>
<p>It wouldn’t really matter that I used the 12/09 money to pay tuition in 1/10. Because I’d still have the 1/09 tuition paid for 2009 qualifying expenses. Same thing for previous years. As long as your first withdrawal isn’t in Dec for Jan’s tuition, you should be fine.</p>
<p>Lafalum, if the OP withdrew money in Dec. to pay next term’s tuition, but actually submitted payment for the bill in Dec., there should be no problem with that at all. Most people receive their bill for the first term of the next calendar year in Dec. of the current year.</p>
<p>That way the withdrawal and the payment are in the same year. The fact that the payment is money now payable for a term that doesn’t begin until Jan isn’t relevant.</p>