College partial refunds and 529s

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College partial refunds and 529s

Post by psteinx » Mon Mar 23, 2020 2:23 pm

So, like, I presume, many parents of college kids, we're expecting partial refunds for the spring semester, related to room & board. (i.e. colleges refunding a portion of the semester's R&B since they moved out early.)

R&B bills were paid from 529s. It's not clear, but seems possible that refunds may be a check or direct deposit to us or perhaps our kids.

I don't want taxes or penalties on the 529 usage (i.e. non-qualified withdrawal). Fortunately, both our kids should be back in college in the fall (i.e. neither graduating), with fresh bills in late summer.

I am guessing/hoping that we'll still be in the clear, as long as our total withdrawals/payments out of the 529s are less than the total qualified expenses (net of refunds) for each kid for 2020. Does that sound right? Anybody have further info? (Yeah, I can examine the relevant IRS publication, and probably will at some point, but IIRC that pub isn't always clear about qualified usage in NORMAL circumstances, much less dealing with refunds from wild scenarios like we're dealing with now.)

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Re: College partial refunds and 529s

Post by bloom2708 » Mon Mar 23, 2020 2:34 pm

If you get a partial refund and use it for next semester's college expenses it seems like you followed the rules. Just a bit of a delay.

Has the college said refunds would be issued or are you just assuming? This is going to hit colleges very hard. Refunds might be problematic. Maybe credits for next semester is more likely.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead

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Re: College partial refunds and 529s

Post by psteinx » Mon Mar 23, 2020 2:38 pm

2 colleges. 1 private and wealthy, 1 public (in-state).

I only briefly reviewed their news releases/messaging, but if I recall correctly, it appears both will refund a portion of R&B.

One college (the private) basically kicked the kids out of housing (very limited exceptions). For the other, I think there was, at least at one point, an option to stay in the dorm/res hall, but realistically I assume most kids went home.

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Re: College partial refunds and 529s

Post by SurfCityBill » Mon Mar 23, 2020 4:49 pm

My daughters college has stated that "Your account will be prorated and credited based on your move-out date..." So basically the assumption is the credit will apply in the Fall. I assume if a student did not continue a check would be sent to the individual.

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Re: College partial refunds and 529s

Post by RetiredCSProf » Mon Mar 23, 2020 6:42 pm

Not exactly the same situation, but I received a partial refund one year (in January 2019) for a college class that my son dropped in spring semester 2019. The tuition was due and paid in the previous year (in December 2018) from my son's Vanguard 529 college fund. When I called Vanguard, they gave me explicit directions on how to re-invest the refund into his 529 fund -- asked me to provide a letter explaining my intent.

Vanguard shows the refund as a new contribution in 2019, instead of as a refund that was re-invested. When I called them on it, they said that's the only way they (their software) can handle it. I've not yet filed my taxes for 2019, but from a tax standpoint, I am treating it as a refund and not a contribution.

As I posted in a different thread, I'm conflicted on how to handle paying rent on my son's college apartment while he's at home taking all his classes on-line. I may just pay it out of taxable savings account.

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Re: College partial refunds and 529s

Post by leehamster » Mon Mar 23, 2020 6:56 pm

I got a partial refund for one college sophomore today. It showed up as a credit in our online account. I don't see a way to get the cash back, so I'm letting it ride till the fall semester.

A graduating senior would have more complexity.

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Re: College partial refunds and 529s

Post by gasdoc » Tue Mar 24, 2020 4:27 pm

Our daughter's apartment complex, on school property, is managed by a private company. The company is proceeding with the assumption that the kids will stay in their apartments despite the school going 100% online. The company, which traditionally has been good at communicating via email, has been conspicuously silent during the past few days. I am thinking they are waiting to see what happens. It seems like most of the students will be leaving if the decision is made to go to the end of the school year online.

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Re: College partial refunds and 529s

Post by Misenplace » Tue Mar 24, 2020 4:36 pm

There's a 60 day window to roll excess withdrawals back into a 529 plan.

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Re: College partial refunds and 529s

Post by markcoop » Tue Mar 24, 2020 4:41 pm

I believe you have 2 options, both of which are totally valid:
1) Return the money to the 529 plan. I believe you have 60 days from the point of the refund to do that.
2) As you mention, just use it for the fall. 529 withdrawals can be made at any point of the year for that year. So, you could take out money Jan 1 and use that money to pay a bill in Sept.

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Re: College partial refunds and 529s

Post by teen persuasion » Tue Mar 24, 2020 9:38 pm

DS4's said that there will be no refunds at his state U.

There were long lines at campus stores, students trying to use up their dining dollars before leaving campus a few weeks ago (just like the end of any semester, but had bigger balances to spend down).

He's in an on campus apartment (not dorm) with kitchen, so skipped the meal plan in favor of cooking own meals all year. He and his roommates are staying on campus while rent is paid. Many international students must stay, too, without travel plans to get home.

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Re: College partial refunds and 529s

Post by DIFAR31 » Wed Mar 25, 2020 12:48 pm

IRS Pub 970 states the following:

If a student receives a refund of qualified education expenses that were treated as paid by a QTP distribution, the student can recontribute these amounts into any QTP for which they are the beneficiary within 60 days after the date of the refund to avoid the need to figure the taxable part of the QTP distribution.

So do that, or instead assuming that the refund is part of a 529 distribution that was made in 2020, hold on to the refund and use it for a future 529 qualified expense in 2020 (if there will be any -- at this point who knows what summer or fall terms will be like this year).

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