College partial refunds and 529s

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psteinx
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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.)

bloom2708
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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.
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psteinx
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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.

SurfCityBill
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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.

RetiredCSProf
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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.

leehamster
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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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gasdoc
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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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Misenplace
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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.

markcoop
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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.
Mark

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teen persuasion
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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.

DIFAR31
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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).

MikeR289
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Re: College partial refunds and 529s

Post by MikeR289 » Thu Apr 16, 2020 3:42 pm

I have a similar question. Paid for Spring semester Tuition, Room and Board 2020 in mid December 2019 when we received the invoice. Now school has refunded a portion of the room and board due to COVID shutdown. Student is studying online from home. What are my options?
—return funds to 529 plan within 60 days and then use funds to pay for fall semester 2020 or beyond?
—or, since student is living at home this current semester, could I actually keep the room and board refund (or at least the board/food portion) since one could consider that a college expense? Since feeding a 19 y.o. Is no small expense, I was wondering if this would be an option. Also, I may have ended up overfunding the 529, so don’t want to necessarily return funds to it if it’s not necessary.
Appreciate any advice. Thanks.

SimonJester
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Re: College partial refunds and 529s

Post by SimonJester » Thu Apr 16, 2020 11:12 pm

MikeR289 wrote:
Thu Apr 16, 2020 3:42 pm
I have a similar question. Paid for Spring semester Tuition, Room and Board 2020 in mid December 2019 when we received the invoice. Now school has refunded a portion of the room and board due to COVID shutdown. Student is studying online from home. What are my options?
—return funds to 529 plan within 60 days and then use funds to pay for fall semester 2020 or beyond?
—or, since student is living at home this current semester, could I actually keep the room and board refund (or at least the board/food portion) since one could consider that a college expense? Since feeding a 19 y.o. Is no small expense, I was wondering if this would be an option. Also, I may have ended up overfunding the 529, so don’t want to necessarily return funds to it if it’s not necessary.
Appreciate any advice. Thanks.
Interesting proposal, what sort of documentation would you be able to produce in case of an audit.

First You need to find your schools COA housing allowance, as your costs cannot exceed this. Take that number and divide it by the number of months in a school year (10), then multiply that by number of months student will be home. This is the max you cannot exceed.

Example my kids school COA for off campus housing Room and Board is $12,178; So my costs cannot exceed $1217.8 * 2 = $2435 (Student is home from 1/2 March through 1/2 May).

So now I have to consider do I have $2435 in utilities and food (I do not charge rent to my student). Is it reasonable to just divide the grocery and utility bills by number of people in the house?

Im curious what other think...
"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." - Benjamin Franklin

DaftInvestor
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Re: College partial refunds and 529s

Post by DaftInvestor » Fri Apr 17, 2020 6:27 am

Misenplace wrote:
Tue Mar 24, 2020 4:36 pm
There's a 60 day window to roll excess withdrawals back into a 529 plan.
Most colleges and Universities would have billed back in November or December for spring semester so 60 days likely not enough for folks that didn't go on a payment plan (which most with 529s unlikely to do).
I believe as long as money is used for fall semester folks are in the clear.

SimonJester
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Re: College partial refunds and 529s

Post by SimonJester » Fri Apr 17, 2020 9:47 am

DaftInvestor wrote:
Fri Apr 17, 2020 6:27 am
Misenplace wrote:
Tue Mar 24, 2020 4:36 pm
There's a 60 day window to roll excess withdrawals back into a 529 plan.
Most colleges and Universities would have billed back in November or December for spring semester so 60 days likely not enough for folks that didn't go on a payment plan (which most with 529s unlikely to do).
I believe as long as money is used for fall semester folks are in the clear.
For the topic at hand (refunds not excess withdrawals), Its 60 days form when you receive the refund...

From IRS Pub 970:
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.
"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." - Benjamin Franklin

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siamond
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Re: College partial refunds and 529s

Post by siamond » Thu Apr 30, 2020 12:50 pm

DaftInvestor wrote:
Fri Apr 17, 2020 6:27 am
Most colleges and Universities would have billed back in November or December for spring semester so 60 days likely not enough for folks that didn't go on a payment plan (which most with 529s unlikely to do).
I believe as long as money is used for fall semester folks are in the clear.
That is also my assumption. The refund we got from our son's college went to his savings account, earmarked for the fall's tuition. I hope the IRS won't find fault with that...

Spirit Rider
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Re: College partial refunds and 529s

Post by Spirit Rider » Thu Apr 30, 2020 7:19 pm

siamond wrote:
Thu Apr 30, 2020 12:50 pm
DaftInvestor wrote:
Fri Apr 17, 2020 6:27 am
Most colleges and Universities would have billed back in November or December for spring semester so 60 days likely not enough for folks that didn't go on a payment plan (which most with 529s unlikely to do).
I believe as long as money is used for fall semester folks are in the clear.
That is also my assumption. The refund we got from our son's college went to his savings account, earmarked for the fall's tuition. I hope the IRS won't find fault with that...
The IRS won''t.

529 distributions and adjusted qualified education expenses are reconciled on a tax year basis, not a semester basis.

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ram
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Re: College partial refunds and 529s

Post by ram » Thu Apr 30, 2020 8:11 pm

markcoop wrote:
Tue Mar 24, 2020 4:41 pm
I believe you have 2 options, both of which are totally valid:
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.
I have done this many times in the past without any problem. My 529 investments have mostly been 100% stocks. I have paid college expenses from my pocket and then refunded myself when stock market has been high.
Ram

SimonJester
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Re: College partial refunds and 529s

Post by SimonJester » Fri May 01, 2020 7:42 am

Spirit Rider wrote:
Thu Apr 30, 2020 7:19 pm
siamond wrote:
Thu Apr 30, 2020 12:50 pm
DaftInvestor wrote:
Fri Apr 17, 2020 6:27 am
Most colleges and Universities would have billed back in November or December for spring semester so 60 days likely not enough for folks that didn't go on a payment plan (which most with 529s unlikely to do).
I believe as long as money is used for fall semester folks are in the clear.
That is also my assumption. The refund we got from our son's college went to his savings account, earmarked for the fall's tuition. I hope the IRS won't find fault with that...
The IRS won''t.

529 distributions and adjusted qualified education expenses are reconciled on a tax year basis, not a semester basis.
And for 529 accounts, the IRS has clear guidance in pub 970, you have 60 days from the when you are issued the refund to put the money back into the 529 account to avoid it being treated as a non qualified withdraw.

The real question is going to come next year when schools issue their 1098s what exactly will they be reporting...
"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." - Benjamin Franklin

Spirit Rider
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Re: College partial refunds and 529s

Post by Spirit Rider » Fri May 01, 2020 8:16 am

SimonJester wrote:
Fri May 01, 2020 7:42 am
The real question is going to come next year when schools issue their 1098s what exactly will they be reporting...
They will be following the Form 1098-T instructions.

Box 1. Payments Received for Qualified Tuition
and Related Expenses

Enter the total amount of payments received for qualified tuition and related expenses from all sources during the calendar year. The amount reported is the total amount of payments received less any reimbursements or refunds made during the calendar year that relate to the payments received for qualified tuition and related expenses during the same calendar year.

Box 4. Adjustments Made for a Prior Year
Payments received. Enter reimbursements or refunds of qualified tuition and related expenses made in 2020 that relate to payments received that were reported for any prior
year after 2002.

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Harry Livermore
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Re: College partial refunds and 529s

Post by Harry Livermore » Fri May 01, 2020 8:32 am

Our son's school posted a credit of +/- $4,500 to his account yesterday. That's about 50% of room and board as promised. We will let it ride and use it for the fall semester.
To the poster who wondered how this will affect schools' cash flows, it obviously depends whether or not the school has a sizeable endowment to fall back on. My son's school is a relatively small, private university with a limited endowment. They estimate that they will have to close an $11 million gap as a result of the reimbursements. We have already been approached by a school booster to consider returning some of the refunded money as a gift to help close the gap.
Since my income has gone to zero, and the future looks uncertain, I consider this a big ask for my family. We were going to cashflow about half of his senior spring semester, and the $4,500 would certainly help. But we are also better off than most folks, and certainly think that the school has been a great experience for our son, so I told the booster that we would consider the idea.
Cheers

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siamond
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Re: College partial refunds and 529s

Post by siamond » Fri May 01, 2020 10:01 am

Spirit Rider wrote:
Fri May 01, 2020 8:16 am
SimonJester wrote:
Fri May 01, 2020 7:42 am
The real question is going to come next year when schools issue their 1098s what exactly will they be reporting...
They will be following the Form 1098-T instructions.

Box 1. Payments Received for Qualified Tuition
and Related Expenses

Enter the total amount of payments received for qualified tuition and related expenses from all sources during the calendar year. The amount reported is the total amount of payments received less any reimbursements or refunds made during the calendar year that relate to the payments received for qualified tuition and related expenses during the same calendar year.

Box 4. Adjustments Made for a Prior Year
Payments received. Enter reimbursements or refunds of qualified tuition and related expenses made in 2020 that relate to payments received that were reported for any prior
year after 2002.
Ah, thank you, this makes the matter much clearer. And makes good solid sense. In our case, we paid the tuition for the spring semester by the end of by 2019, so Box 4 will be used to describe the corresponding (partial) refund we recently received, which we set aside in a savings account. And when we'll pay the 2020 fall semester, this will go in Box 1 and balance out Box 4. And we'll be clean. Cool.

SimonJester
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Re: College partial refunds and 529s

Post by SimonJester » Fri May 01, 2020 9:08 pm

Spirit Rider wrote:
Fri May 01, 2020 8:16 am
SimonJester wrote:
Fri May 01, 2020 7:42 am
The real question is going to come next year when schools issue their 1098s what exactly will they be reporting...
They will be following the Form 1098-T instructions.

Box 1. Payments Received for Qualified Tuition
and Related Expenses

Enter the total amount of payments received for qualified tuition and related expenses from all sources during the calendar year. The amount reported is the total amount of payments received less any reimbursements or refunds made during the calendar year that relate to the payments received for qualified tuition and related expenses during the same calendar year.

Box 4. Adjustments Made for a Prior Year
Payments received. Enter reimbursements or refunds of qualified tuition and related expenses made in 2020 that relate to payments received that were reported for any prior
year after 2002.
But what is interesting here, my kids 1098T do not include any payments made for room & board, these refunds were for room & board not tuition. So their 1098s may not change at all....
"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." - Benjamin Franklin

marcopolo
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Re: College partial refunds and 529s

Post by marcopolo » Fri May 01, 2020 10:50 pm

psteinx wrote:
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.)
We already received approximately 50% refund of room and board. Will be using that to pay for (part of) summer school classes. Using 529 funds for rest and for fall. Since the qualified expenses and 529 withdrawals occurred in the same year, and there will be no excess (taxable withdrawals), I have no plans to report anything on our tax returns.
Once in a while you get shown the light, in the strangest of places if you look at it right.

Spirit Rider
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Re: College partial refunds and 529s

Post by Spirit Rider » Fri May 01, 2020 11:16 pm

marcopolo wrote:
Fri May 01, 2020 10:50 pm
We already received approximately 50% refund of room and board. Will be using that to pay for (part of) summer school classes. Using 529 funds for rest and for fall. Since the qualified expenses and 529 withdrawals occurred in the same year, and there will be no excess (taxable withdrawals), I have no plans to report anything on our tax returns.
I would be surprised if there are any summer sessions. Some colleges & universities have already said they will not restart until the 2021 spring semester. Almost all of the rest have not committed to a fall semester.

It seems to me that the safest course of action would be to re-contribute the refund. You can still take it back out when it is needed. If you don't do that within 60 days and no future expenses materialize. Then the refunded amount will be a non-qualified distribution.

marcopolo
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Re: College partial refunds and 529s

Post by marcopolo » Sat May 02, 2020 12:32 pm

Spirit Rider wrote:
Fri May 01, 2020 11:16 pm
marcopolo wrote:
Fri May 01, 2020 10:50 pm
We already received approximately 50% refund of room and board. Will be using that to pay for (part of) summer school classes. Using 529 funds for rest and for fall. Since the qualified expenses and 529 withdrawals occurred in the same year, and there will be no excess (taxable withdrawals), I have no plans to report anything on our tax returns.
I would be surprised if there are any summer sessions. Some colleges & universities have already said they will not restart until the 2021 spring semester. Almost all of the rest have not committed to a fall semester.

It seems to me that the safest course of action would be to re-contribute the refund. You can still take it back out when it is needed. If you don't do that within 60 days and no future expenses materialize. Then the refunded amount will be a non-qualified distribution.

The school my son attends, like many other schools, are conducting summers sessions the same way they ended the Spring term, with online offerings. He is using this opportunity to get some "filler" course requirements satisfied. Just paid the tuition today.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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