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529 Withdrawal Calendar/ Academic Year Timing

Posted: Thu Dec 27, 2018 5:48 pm
by goodenyou
For those of you with kids in college and college expenses, how do y’all time the payments of the Spring Semester that are due in the beginning of January with the withdrawal from the 529 account? Specifically, not running afoul of withdrawing at the end of December in the wrong calendar year to meet the deadline for the tuition payment that is due in January of the following calendar year. The turnaround time for the payment puts the payment in jeopardy of being late. I have resigned to repaying myself, but I prefer to cut the check to the university. This issue is really stupid and should have a correction. What do you do?

Re: 529 Withdrawal Calendar/ Academic Year Timing

Posted: Thu Dec 27, 2018 6:31 pm
by delamer
I did what you do — pay the actual bill out of another account to meet the deadline and then reimburse the other account.

I agree; not a great system.

Re: 529 Withdrawal Calendar/ Academic Year Timing

Posted: Thu Dec 27, 2018 6:35 pm
by livesoft
I have always had the 529 plan that I own send me a check in the calendar year that I want to have it on the 1099-Q and on my tax return. I have never had the 529 plan send any money directly to any of the universities that my children have attended in the past 9 years.

I prefer to pay the university with a cash-back credit card and pocket the cash back.

Re: 529 Withdrawal Calendar/ Academic Year Timing

Posted: Thu Dec 27, 2018 7:13 pm
by doneat53
I think most schools are aware of this problem if you just talk with the business office. The deadline for the school my kids attend is Jan 2 but they recognize this problem and allow you to wait until Jan to send the check and they ask that I just let them know that the check is on the way. So I have the check sent directly from their 529 to the school's business office that way I don't have to prove anything to the IRS that the funds were legitimately used for college expenses and the reporting goes on my kids tax return, not making my own tax return more complicated.

doneat

Re: 529 Withdrawal Calendar/ Academic Year Timing

Posted: Thu Dec 27, 2018 11:33 pm
by DIFAR31
doneat53 wrote:
Thu Dec 27, 2018 7:13 pm
I think most schools are aware of this problem if you just talk with the business office. The deadline for the school my kids attend is Jan 2 but they recognize this problem and allow you to wait until Jan to send the check and they ask that I just let them know that the check is on the way. So I have the check sent directly from their 529 to the school's business office that way I don't have to prove anything to the IRS that the funds were legitimately used for college expenses and the reporting goes on my kids tax return, not making my own tax return more complicated.

doneat
I agree with this analysis and strategy. As far as the IRS is concerned it doesn't matter when the expense is billed or when the payment is due; what matters is that the 529 distribution and the payment that the distribution is meant to cover take place in the same calendar year.

Re: 529 Withdrawal Calendar/ Academic Year Timing

Posted: Fri Dec 28, 2018 8:25 am
by SchruteB&B
This is the “rule” that is not specifically found in any IRS regs correct? It is stupid and the IRS should specifically address it.

I will be paying the college out of my own account and then reimbursing from the 529 since the due date is very early in January. Our school charges a 3% credit card fee so no point in doing that.

Re: 529 Withdrawal Calendar/ Academic Year Timing

Posted: Fri Dec 28, 2018 9:47 am
by MikeG62
doneat53 wrote:
Thu Dec 27, 2018 7:13 pm
I think most schools are aware of this problem if you just talk with the business office. The deadline for the school my kids attend is Jan 2 but they recognize this problem and allow you to wait until Jan to send the check and they ask that I just let them know that the check is on the way. So I have the check sent directly from their 529 to the school's business office that way I don't have to prove anything to the IRS that the funds were legitimately used for college expenses and the reporting goes on my kids tax return, not making my own tax return more complicated.

doneat
My youngest daughters university changed their policy during her junior year to not accept payments for spring tuition or R&B until January. Could not pay electronically if if we wanted to. Solved the issue.

Be careful otherwise as you may open yourself up to exposure for overdrawing funds in one calendar year for costs relating to the following year.

Re: 529 Withdrawal Calendar/ Academic Year Timing

Posted: Fri Dec 28, 2018 10:11 am
by DIFAR31
SchruteB&B wrote:
Fri Dec 28, 2018 8:25 am
I will be paying the college out of my own account and then reimbursing from the 529 since the due date is very early in January. Our school charges a 3% credit card fee so no point in doing that.
That's fine, as long as the payment to the college using your own funds is done in the same calendar year that the distribution from the 529 for reimbursement is done.

Re: 529 Withdrawal Calendar/ Academic Year Timing

Posted: Fri Dec 28, 2018 12:01 pm
by workerbeeengineer
We also wanted to avoid the possibility of running afoul of the the IRS wrt the 529 withdrawals. So like others here, we paid the bill for Winter quarter out of other funds. The 529 plan balance covers only a portion of the total cost of attendance at our child’s university, so using other assets was always part of our plan.