Well, that certainly is the easiest way for both 529 administrators and account owners to deal with recontributions- no tracking of earnings required. Although I don’t suggest that account owners should intentionally make large overpayments to schools so that in the process of a recontribution earnings can be converted to contributions with no tax consequence, it’s interesting to see that the IRS is essentially turning a blind eye. Under most circumstances there probably isn’t much of a benefit, but I can easily come up with reasonable hypotheticals when the benefit could be substantial.
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