529 plan withdrawal question.

Parent Cafe
1

I cannot find a definitive statement by the IRS, and have read articles that it really isn’t addressed as well as it should be.

Do qualified withdrawals have to match the calendar year when the expense is paid?

For instance if I withdrew $20K from the 529 in 2015…do the expenses have to be paid in 2015, no matter for which academic semester? I think that is the case.

However, I read one article that said although this is the case, you typically have until March 31st of the following calendar year to make a payment. So…If I withdrew $25K in 2015, and paid $20K in 2015…then I have until March 31, 2016 to pay the remaining $5. I can’t find this anywhere except the article, which I do not consider tax law.

I’d appreciate any help from those of you who know, or can direct me to any exact publication that actually addresses this.

Thanks!

2

Your answer is found by virtue of the penalty calculation on the prorata earnings portion of the withdrawal when the withdrawal in one calendar year is greater than the qualified expenses paid in one calendar year.

3

http://talk.collegeconfidential.com/financial-aid-scholarships/1820200-taking-529-withdrawals-in-wrong-calendar-year-what-happens-p1.html

4

Thank you so much…sorry I didn’t see where it was discussed before.

5

You are welcome.

6

Ok…another question, just want to confirm. If tuition for spring 2016 is $5k, I can withdraw that in 2015 as long as I pay it to the university by December 31, 2015?

7

Yes.

I would pay it early enough in December so it’s credited in December and not January due to mailing and processing time.

8

Again, thank you!

9

OP,
Are you qualify for ATOC?

$4000 qualified educational expenses → $2500 tax credits.

Sometime, your could claim AOTC and also make taxable withdrawal of your 529 (without any tax liabilities.) See IRS Pub 970 https://www.irs.gov/publications/p970/ch08.html#en_US_2014_publink1000178534 “Coordination With American Opportunity and Lifetime Learning Credits”