529 withdrawl timing

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tweet737
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529 withdrawl timing

Post by tweet737 » Tue Aug 21, 2018 6:41 pm

I got the following quote from a website entitled "Savingforcollege.com" It says: "Although you will not find this rule explicitly stated anywhere in the IRS' publications or tax forms, the withdrawals you take from your 529 account must match up with the payment of qualifying expenses in the same tax year."

I'm struggling with how to interpret this. I read it to say take the distribution in the same year in which you make payment. However, I am hearing from a professional tax preparer that you should take the distribution in the year in which you paying FOR....not when you make the payment.

The classic example is paying for the Spring semester in the previous December. If I actually make payment for Spring tuition in December...does the IRS want me taking the 529 distribution in December or wait until the following calendar year (when the semester actually starts)? I read Pub 970 and do not see this addresses...so is it a mute point?

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gasdoc
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Re: 529 withdrawl timing

Post by gasdoc » Tue Aug 21, 2018 7:49 pm

I am not an expert, other than I have been doing this for a year now, and my accountant seems to like the way I do it!!! I pay the bill, then go onto the 529 web site and request the disbursement. When the check arrives, I staple the stub of the 529 payment to the receipt from the payment. So to answer your question, if I pay the spring tuition in December, I immediately request the reimbursement the same day (in December). Hope this helps until someone more knowledgeable replies.

gasdoc

amitb00
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Re: 529 withdrawl timing

Post by amitb00 » Tue Aug 21, 2018 8:00 pm

It is in the year you made the payment.

OhioGozaimas
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Re: 529 withdrawl timing

Post by OhioGozaimas » Tue Aug 21, 2018 8:15 pm

Here's the way I deal with it:
The distribution date, the payment date and the expense should all be within the same calendar year for absolute safety. Distribution and payment for the spring semester are both in early January (never in December).

I also get a spreadsheet from the beneficiary summarizing the actual expenses covered to attach to the 1099-Q.

Here's a pretty good explanation of the timing issues:
https://www.forbes.com/sites/josephhurl ... f452d1552e

YMMV.
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HereToLearn
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Re: 529 withdrawl timing

Post by HereToLearn » Tue Aug 21, 2018 9:59 pm

The university will issue a 1098-T which lists tuition amounts paid during the calendar year. The 529 administrator will issue a 1099-Q reporting distributions made during the calendar year. These two will not match up because the 1098-T does not include room, board, textbook or computer costs, although I think there will be a reporting change starting this year.

The timing issue you want to be aware of is the tuition due date for the second semester tuition. Many schools will generate a bursar bill in December, but payment is not due until January. If that is the case, the school will report the payment due date, not paid date, so you want to be sure to not pay Jan due dates in December or your 1098-T and 1099-Q will be very far apart.

The timing can be very tight for schools on the trimester system. Call or email someone at the school to find out what their 1098-T reporting time period is.

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goodenyou
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Re: 529 withdrawl timing

Post by goodenyou » Wed Aug 22, 2018 8:44 am

I make sure the withdrawal and payment match up in the same CALENDAR year. I have the Spring tuition bill sent directly to the university in January. I once forgot to reimburse myself the cost of the published room and board expenses (qualified) from the previous Fall semester (child is in a more expensive rental apartment off campus). I could not retroactively pay myself in the following calendar year due to the mismatch of IRS documentation. I also realized that you cannot exceed the room and board charges or it will not be a qualified expense (tax consequences). I have lived on a academic calendar year my whole life (mine and now my kids'). The new year begins in August or September, as far as I have ever known. January 1 is just a formality.
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HereToLearn
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Re: 529 withdrawl timing

Post by HereToLearn » Wed Aug 22, 2018 9:55 am

goodenyou wrote:
Wed Aug 22, 2018 8:44 am
I make sure the withdrawal and payment match up in the same CALENDAR year. I have the Spring tuition bill sent directly to the university in January. I once forgot to reimburse myself the cost of the published room and board expenses (qualified) from the previous Fall semester (child is in a more expensive rental apartment off campus). I could not retroactively pay myself in the following calendar year due to the mismatch of IRS documentation. I also realized that you cannot exceed the room and board charges or it will not be a qualified expense (tax consequences). I have lived on a academic calendar year my whole life (mine and now my kids'). The new year begins in August or September, as far as I have ever known. January 1 is just a formality.
It really depends on the school's billing and reporting cycle. Trimester schools may require payment for the second trimester in December or in January, and will report accordingly on the 1098-T. I know of another semester school that requires payment for the spring semester in December, so a freshman starting this year would pay for Fall 2018 & Spring 2019 all in 2018. Freshmen at most semester schools would pay for one semester in 2018 and one in 2019, so you just have to check with the school and see how & when they report on the 1098.

blevine
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Re: 529 withdrawl timing

Post by blevine » Wed Aug 22, 2018 10:50 am

One reason I decided not to fully fund all in 529, just a portion.
Headaches often come from optimization.

I made sure I had enough to cover at least half the cost of private school educations, or all of public.
Since the kids went private, was easy. Just have all costs paid directly to the school from the 529 plan.
These distributions are not generally questioned. Those you have distributed to yourself, are more likely to be audited
and therefore the timing matters. But then again, those costs you can better control when paid and when reimbursed to coincide.
The tuition is the pain with the Dec/Jan issue, but as I paid tuition directly to the school from 529, not worried about the timing.
I dare the IRS to tell me that the money sent to the school for the exact amount of tuition, after the bill is created, is not paid in the correct year !
The intent was clear, they sent bill in Dec for following year, and I paid by the due date, whatever the due date.
But be careful about off campus housing etc, and make sure of the timing and amount you withdraw (at/below schools estimated cost published by the finaid office).

RetiredCSProf
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Re: 529 withdrawl timing

Post by RetiredCSProf » Sun Aug 26, 2018 9:30 pm

HereToLearn wrote:
Wed Aug 22, 2018 9:55 am

It really depends on the school's billing and reporting cycle. Trimester schools may require payment for the second trimester in December or in January, and will report accordingly on the 1098-T. I know of another semester school that requires payment for the spring semester in December, so a freshman starting this year would pay for Fall 2018 & Spring 2019 all in 2018. Freshmen at most semester schools would pay for one semester in 2018 and one in 2019, so you just have to check with the school and see how & when they report on the 1098.
Yes, it depends on the school. At CA community college, the billing date was tied to the date when my child registered for classes, which preceded the date that tuition and fees were due. He usually registered in November for a class that started the following February. So, the 1098-T form reported the spring semester's tuition as paid in the previous calendar year, regardless of when he actually paid the bill.

He's transferring this year. I don't know yet how it will work for spring '19 semester

marcopolo
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Re: 529 withdrawl timing

Post by marcopolo » Sun Aug 26, 2018 10:19 pm

RetiredCSProf wrote:
Sun Aug 26, 2018 9:30 pm
HereToLearn wrote:
Wed Aug 22, 2018 9:55 am

It really depends on the school's billing and reporting cycle. Trimester schools may require payment for the second trimester in December or in January, and will report accordingly on the 1098-T. I know of another semester school that requires payment for the spring semester in December, so a freshman starting this year would pay for Fall 2018 & Spring 2019 all in 2018. Freshmen at most semester schools would pay for one semester in 2018 and one in 2019, so you just have to check with the school and see how & when they report on the 1098.
Yes, it depends on the school. At CA community college, the billing date was tied to the date when my child registered for classes, which preceded the date that tuition and fees were due. He usually registered in November for a class that started the following February. So, the 1098-T form reported the spring semester's tuition as paid in the previous calendar year, regardless of when he actually paid the bill.

He's transferring this year. I don't know yet how it will work for spring '19 semester
I don't think the billing or due date has any impact on lining up with the 529 withdrawal. Only when you actually make the payment has to be in the same year as the withdrawal. The 1098 from the school is almost never going to match up with the allowable QHEE anyway, so it does not really make much of a difference what is stated on the 1098.

My son's schools bills in December, with the bill due in January, for the Spring semester. I can choose to pay the bill in December, or wait till January. I then just need to make sure i withdraw the corresponding funds from the 529 in the same year as when i chose to make the payment.
Once in a while you get shown the light, in the strangest of places if you look at it right.

mcraepat9
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Re: 529 withdrawl timing

Post by mcraepat9 » Mon Aug 27, 2018 5:11 pm

If you think about it, the year you make the payment makes more sense from the IRS's perspective. The idea is that the 529 is the source of funds making the payment, so matching the payments makes more sense than matching the *year* in which the payment is for (which requires more diligence and info). It seems like doing anything else is just inviting scrutiny from the IRS.
Amateur investors are not cool-headed logicians.

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