529 - withdrew too much

[BelknapPoint]

@DigitalDad

It is my understanding, that some plans don’t have a format “redeposit” process - some do (e.g., Fidelity). The IRA doesn’t mandate a special process - so using a standard contribution would fulfill the rules.

However… the IRS only allows “redeposit” for refunds (e.g., when a class was dropped, etc.). In fact, any redeposit form might actually make you declare and sign that this IS indeed due to a REFUND - to comply with IRS rules.

If you withdrew more than the actual expenses you had incurred (e.g., for some reason you withdrew without having incurred expenses) - then the penalty applies. Making an equal-amount contribution won’t undo that.

PS - do you have the option to already pay the Spring Semester? Colleges can bill you in December for the next calendar year, and these amounts will be appropriately declared .

There’s a lot of gray area with a recontribution and, as noted here by DigitalDad, different 529 plans will have different procedures.

My personal and anecdotal experience happened when a scholarship posted to a student’s account late, after the original balance due had already been paid in part with 529 funds. The school refunded the overpayment (no form of any kind to complete and sign), and within 60 days the refund amount was deposited in the student’s 529 account. The 529 plan didn’t care that it was a recontribution, and on the next account statement it was designated as a regular contribution. One of my thoughts was that the earnings portion of the refunded amount was effectively “washed” when the plan administrator designated the full amount as a new contribution (even though they were clearly on notice that the deposit was really a recontribution of part of an earlier distribution).