<p>I withdrew money from my son's 529 in late Dec to pay his spring tuition. I paid that bill in early Jan. Now I'm doing my taxes and the 1099-Q shows this huge distribution (of both 2012 tuition and spring 2012) but 1098-T from the university only shows tuition paid in 2012, which is far less since it doesn't include the early Jan payment. </p>
<p>So it looks like I cashed out more from the 529 than i should've, and my nice refund went up in smoke.</p>
<p>I’m copying my reply from your other thread to this one:</p>
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<p>If you are looking for much more than that, you will have to ask more specific questions or provide more detail. Were there R&B and book expenses? Did you look at the bills/online account for the school, receipts, cancelled checks for payments etc. to determine all 529 qualified expenses for 2012?</p>
<p>annoyingdad, thanks for your replies to my question.</p>
<p>My question is really more about the TIMING of the 529 distribution (which I took in 2012) to pay tuition, R&B for 2013 (spring semester). The IRS sees that I took a large distribution but they don’t see evidence - unless I report my Jan 2013 payments - that it went to education. I’ve done nothing wrong - everything I took out I have put to education, it’s just that I wasn’t great with timing. </p>
<p>I took the distribution on Dec 28 because my daughter’s school requires payment by Jan 8. I didn’t feel, with slow ETF transactions, that I could make it by Jan 8 if I’d waited until Jan 2 to make the distribution.</p>
<p>I’m tempted to just report my spring 2013 expenses on my 2012 return so it times with the distribution. I don’t know if that’s legit but I don’t want to pay a penalty if i’ve done nothing wrong.</p>
<p>This happens a lot, there are threads about this every year. I am sorry to say that you can’t take money in December to pay for the tuition bill that is due in January without disqualifying the money from being for categorized as being used in the following tax year. A lot of people get around this by having the 529 company send the money directly to the school so that the money will be recorded as withdrawn in the right tax year. Or some people would pay with other source first and take out money from 529 after the Jan 1 of the next year. The good news is that only the gain portion of the money withdrawn is subject to penalty and also has to be claimed as income in the previous tax year. Hopefully, that is not a big amount in your case.</p>
<p>The 1098s from colleges can often be skewed. Some report the date that costs were billed by them, not the dates that monies were paid. Other people have said that, if questioned by the IRS, what matters is the date that bills were paid. </p>
<p>Also, keep in mind that student loans used for tuition can be credited as your expenses for the year when claiming the Federal Opportunity Tax Credit.</p>
<p>Thanks everyone. I believe I am screwed on this deal but thankfully I paid enough out of pocket (vs. using 529 monies) in 2012 that my over-withdrawl of 529 was somewhat offset. I know the penalty is still being paid, but it doesn’t look as bad.</p>
<p>charlieschm, the 1098 I got from my daughter’s school had a check in box 7, indicating that part of what was paid in 2012 is for spring semester 2013.</p>
<p>By the way, I just read the IRS directions for the form for the Opportunity Tax Credit. It says you can include college tuition paid in Spring 2013 in your 2012 tax filing. That is particularly valuable because the tax credit can only be used for four calendar years. This flexibility means you can also get credit for what you paid in the last semester of 4 years of college. </p>
<p>Because the same college expense can only be credited once (between eligible 529 expenses, government grants, aid from the college, and the Tax Credit), this flexibility can be useful. </p>
<p>One other item to keep in mind is that 529 costs can also go to room and board expenses (even off-campus), but the Opportunity Tax Credit is limited to tuition, books, mandatory academic supplies, and mandatory fees.</p>
<p>529 dollars can also be used for grad or professional school, so on the rare chance that someone has extra dollars in a 529 account compared to their eligible undergrad expenses, those dollars can be set aside for the future.</p>
<p>The 1098T is advisory for claiming an education credit but really has nothing to do with 529 withdrawals as it doesn’t include R&B or books. The source docs are where to look. Who’s SSN is on the 1099Q? If the student’s, they would need to report the excess withdrawal. How did you receive the withdrawal and how was the bill paid? If you took an action to start the payment process in 2012, such as dropping a check in the mail, it may be allowable even though it wasn’t credited on the account until January.</p>
<p>What I SHOULD have said is you can use 4.5 years worth of college expenses to claim your Opportunity Tax Credits, if you pay for the last semester before the end of the fourth calendar year. This is an issue if a family is mostly using other funding sources (such as 529 accounts and aid from the college) to pay for much of their college expenses. </p>
<p>If you have 2 kids in college at the same time, you might want to only take the Opportunity Tax Credit for one of your kids in one year when they are both in college. This would involve saving the 4th year of a Tax Credit for the second child, and using it when you only have one kid in college. Otherwise, you may not owe enough in federal income taxes to get the full benefit of two $2,500 tax credits in a single year.</p>
<p>Only part of the $ 2,500 per year Opportunity Tax Credit is paid to the parents if the parents do not end up owing at least $2,500 in federal income taxes in that year.</p>
<p>^You mean all 4 years can be used instead of 3.5 years? Most people take 4 years of college to do undergrad and usually not more. There is the issue of the first and the last year being a half year of the 5 tax years span and where do you want to allocate the money to maximize the tax credit that can be done a maximum of 4 times.</p>
<p>Basically, you can do a simple strategy like dump all or as much as you could from your 529 in one year, first or last and not claim the credit on that year. Then make sure you have at least enough out of pocket to get the $2500 credit on the rest of the years.</p>
<p>Another important factor is the credit is not permanent. It is scheduled to end 2017 while it is quite possible that it would be extended. Personally, I would tend to try to use earlier than later when the provision might end in 2017.</p>
<p>Not exactly - 40% of the AOC is refundable, so $1500 per student is dependent on having taxable income. This $1500 is claimed before most other non-refundable credits.</p>
<p>Also, using 529 funds doesn’t keep you from claiming AOC, it just means you have to treat some of the earnings as taxable (but you don’t pay the penalty for non-qualified expenses. The trick with AOC, if you don’t have $1500 in tax liability is to claim it in the 4 years with the highest tax liability. Otherwise, claim it the first 4 years, and pay the spring tuition at the end of December each year (that’s where the “starting during the first 3 months of the next tax year” fits in.It might not work as well if your school bills by the quarter.</p>
<p>See IRS Publication 970 to see how to coordinate 529 distributions with the AOC.</p>