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Guidance on Recontributions, Rollovers and Qualified Higher Education Expenses under Section 529
Notice 2018-58
III. RECONTRIBUTION OF REFUNDED QHEEs
The Treasury Department and the IRS are aware of concerns expressed by QTP administrators regarding the administrative burdens that would arise if a recontribution of a refunded QHEE is treated in the same manner as a rollover under Notice 2001-81 requiring a breakdown of the earnings portion of the recontribution.
Because the amount is refunded by the eligible educational institution, which will have no information regarding the income portion of each tuition payment (whether made from a single or multiple QTPs), QTP administrators generally would be unable to determine the earnings portion of the recontribution. Accordingly, the Treasury Department and the IRS intend to issue regulations providing that the entire recontributed amount will be treated as principal. This rule of administrative convenience will eliminate the burdens associated with determining the earnings portion.
Furthermore, because the recontributed amount previously was taken into account in applying the overall contribution limit under § 529(b)(6), the Treasury Department and the IRS anticipate that the regulations will provide that the recontributed amount does not count against the limit on contributions on behalf of the designated beneficiary under § 529(b)(6). In addition, consistent with § 529(c)(3)(D), the Treasury Department and the IRS anticipate that the regulations will confirm that the recontribution must be to a QTP for the benefit of the designated beneficiary who received the refund of QHEEs, although the recontribution need not be to the QTP from which the distributions for the QHEEs were made.