529 Withdrawal TIming

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Leesbro63
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529 Withdrawal TIming

Post by Leesbro63 » Thu Nov 16, 2017 12:02 pm

I think this was discussed before...perhaps even by me! If I pay for my son's college expenses directly for the semester beginning in January 2018, how long can I delay reimbursing myself from his 529 account? In other words, I'm not sure if I want to reimburse myself, or "let it ride" (the 529 plan) and accumulate money for grandkids later. What happens with the pending tax bill will perhaps influence me either way. Can I delay withdrawing from the 529 until December 2018?

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MastersChampion
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Re: 529 Withdrawal TIming

Post by MastersChampion » Thu Nov 16, 2017 12:40 pm

I'm interested in other answers on this because I don't know. I suspect it may depend on the 529 plan you are participating in.

I will say that I manage my expenses by year. That is, I pay all the college expenses as they come from my bank account, then in December I make a contribution to the 529 plans for those expenses and immediately withdraw it. This way I get the tax benefit in my state (IL) for deposits to a 529 plan.
I don't know how long I can wait to "post-pay" via my deposit/withdrawal. My plan doc says nothing about this timing and nothing about what you ask.

Do you see anything in your plan doc?

NotWhoYouThink
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Re: 529 Withdrawal TIming

Post by NotWhoYouThink » Thu Nov 16, 2017 12:54 pm

It's by calendar year, which makes it hard sometimes if you need the 529 money for the spring semester bill. But you have until the end of 2018 to withdraw 529 money for a bill you paid in 2018.

If you take the money out in Dec 2017 to pay the bill in Jan 2018 then you will create a problem.

And whatever you do, keep records, because the 1098 you get from the college will be wrong most of the time.

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Leesbro63
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Re: 529 Withdrawal TIming

Post by Leesbro63 » Thu Nov 16, 2017 3:26 pm

NotWhoYouThink wrote:
Thu Nov 16, 2017 12:54 pm
It's by calendar year, which makes it hard sometimes if you need the 529 money for the spring semester bill. But you have until the end of 2018 to withdraw 529 money for a bill you paid in 2018.

If you take the money out in Dec 2017 to pay the bill in Jan 2018 then you will create a problem.

And whatever you do, keep records, because the 1098 you get from the college will be wrong most of the time.
Sadly, I am well aware of your points, as I've been withdrawing from 529s for a while for two kids. I learned early on to never withdraw for a January semester before January. And I've learned to keep good records. Even with that, almost every year there will be a letter assessing for tax due on 529 withdrawals. I then write back "used for college" and attached a copy of something proving full time enrollment. 30 days later I get a "got your info/still working on it" letter than 30 days after that I get a "get out of jail free" (closing letter..no additional tax due) letter. Like clockwork. But you answered my question...I can defer until the end of 2018 whether I want to reimburse myself for January, 2018, college expenses that I'll pay out of pocket, directly to the University and to my kid for the qualifying stuff not directly to the school.

soccerrules
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Re: 529 Withdrawal TIming

Post by soccerrules » Thu Nov 16, 2017 3:49 pm

I guess I need to look into this further. I have no state income tax, so that may be the reason it matters to some.

I have always been told I can take the money out at any time as long as I have receipts to prove I spent other funds on approved educational expenses (room/board, books, tuition) . I would need to keep the records in case I was audited.

The funds I use from my 529 are sent directly to the institution from the plan and then I cash flow the rest of the expenses. I do not anticipate having leftover funds in my 529's.
Don't let your outflow exceed your income or your upkeep will be your downfall.

malbecman
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Re: 529 Withdrawal TIming

Post by malbecman » Thu Nov 16, 2017 7:29 pm

We have our 529 send a check directly to the school. Then you don't need to worry about this.

Heres some good tips

http://www.savingforcollege.com/article ... n-spenders

Spirit Rider
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Re: 529 Withdrawal TIming

Post by Spirit Rider » Thu Nov 16, 2017 10:58 pm

IRS Publication seems pretty clear that expenses and distributions should occur in the same year. Here is the preamble to the Figuring the Taxable Portion of a Distribution section in IRS Publication 970 Tax Benefits for Education:

To determine if total distributions for the year are more or less than the amount of qualified education expenses, you must compare the total of all QTP distributions for the tax year to the adjusted qualified education expenses.

Of course they said this in Announcement 2008-17 Guidance on Qualified Tuition Programs Under Section 529, Advance Notice of Proposed Rulemaking. They have accepted other sections of this guidance as "substantial authority, but after a number of 529 CP-2000 notices (all $0 due), my aggressive stance is weakening. The last one was a marathon and all on them, because it was 100% legit.

Section 529 is silent regarding whether distributions must be made from a section 529 account in the same tax year as QHEEs were paid or incurred. Concerns have been raised that individuals could allow the account to grow indefinitely on a tax-deferred basis before requesting reimbursement or use distributions in earlier years to pay QHEEs in later years. Accordingly, the IRS and the Treasury Department propose to adopt a rule that, in order for earnings to be excluded from income, any distribution from a section 529 account during a calendar year must be used to pay QHEEs during the same calendar year or by March 31 of the following year. The IRS and the Treasury Department welcome comments on rules necessary to ensure that distributions from section 529 accounts are appropriately matched to the payment of QHEEs.

curiousinohio
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Re: 529 Withdrawal TIming

Post by curiousinohio » Wed Jun 20, 2018 2:39 pm

What stance have you taken and successfully won?
Have you taken the distributions for QHEE expenses of another calendar year?
Spirit Rider wrote:
Thu Nov 16, 2017 10:58 pm
IRS Publication seems pretty clear that expenses and distributions should occur in the same year. Here is the preamble to the Figuring the Taxable Portion of a Distribution section in IRS Publication 970 Tax Benefits for Education:

To determine if total distributions for the year are more or less than the amount of qualified education expenses, you must compare the total of all QTP distributions for the tax year to the adjusted qualified education expenses.

Of course they said this in Announcement 2008-17 Guidance on Qualified Tuition Programs Under Section 529, Advance Notice of Proposed Rulemaking. They have accepted other sections of this guidance as "substantial authority, but after a number of 529 CP-2000 notices (all $0 due), my aggressive stance is weakening. The last one was a marathon and all on them, because it was 100% legit.

Section 529 is silent regarding whether distributions must be made from a section 529 account in the same tax year as QHEEs were paid or incurred. Concerns have been raised that individuals could allow the account to grow indefinitely on a tax-deferred basis before requesting reimbursement or use distributions in earlier years to pay QHEEs in later years. Accordingly, the IRS and the Treasury Department propose to adopt a rule that, in order for earnings to be excluded from income, any distribution from a section 529 account during a calendar year must be used to pay QHEEs during the same calendar year or by March 31 of the following year. The IRS and the Treasury Department welcome comments on rules necessary to ensure that distributions from section 529 accounts are appropriately matched to the payment of QHEEs.

Spirit Rider
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Re: 529 Withdrawal TIming

Post by Spirit Rider » Wed Jun 20, 2018 5:02 pm

curiousinohio wrote:
Wed Jun 20, 2018 2:39 pm
What stance have you taken and successfully won?
Have you taken the distributions for QHEE expenses of another calendar year?
Several years ago, my oldest girl's school required the first payment two weeks before the start of classes to hold your class selections. It just so happened, that required a 529 withdrawal at the end of December for the spring semester to get it to the school in time. Big headache, wouldn't do it again.

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teen persuasion
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Re: 529 Withdrawal TIming

Post by teen persuasion » Wed Jun 20, 2018 5:22 pm

Spirit Rider wrote:
Wed Jun 20, 2018 5:02 pm
curiousinohio wrote:
Wed Jun 20, 2018 2:39 pm
What stance have you taken and successfully won?
Have you taken the distributions for QHEE expenses of another calendar year?
Several years ago, my oldest girl's school required the first payment two weeks before the start of classes to hold your class selections. It just so happened, that required a 529 withdrawal at the end of December for the spring semester to get it to the school in time. Big headache, wouldn't do it again.
I'm not using a 529, but my DD1's university also had early Aug bill deadlines for fall semester and early Dec bill deadlines for spring semester. Originally I was irked at how early they were, but I later saw the advantage for college tax credits. It neatly places an entire school year's bills in a calendar year, rather than a half year's bills followed by 3 full year's bills and a final half year's bills at graduation. The AOTC can only be claimed in 4 years. I had much fewer troubles matching scholarships and grants vs tuition and R&B at tax time (how much to claim as taxable income?) for DD1, than I did for DS2, DD3, and DS4, all of whose schools billed after January 1 for spring semester.

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GoldStar
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Re: 529 Withdrawal TIming

Post by GoldStar » Wed Jun 20, 2018 8:58 pm

Spirit Rider wrote:
Wed Jun 20, 2018 5:02 pm
curiousinohio wrote:
Wed Jun 20, 2018 2:39 pm
What stance have you taken and successfully won?
Have you taken the distributions for QHEE expenses of another calendar year?
Several years ago, my oldest girl's school required the first payment two weeks before the start of classes to hold your class selections. It just so happened, that required a 529 withdrawal at the end of December for the spring semester to get it to the school in time. Big headache, wouldn't do it again.
I'm not following what the headache is. My kids' spring semester Bill's were/are always due in December (and I make a single in full payment with a 529 withdrawl). The expense is the year before the kid actually goes to school but this isn't relevant - the expense and payment and withdrawl still all occur in the same year. Sorry - I am missing something.

DIFAR31
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Re: 529 Withdrawal TIming

Post by DIFAR31 » Thu Jun 21, 2018 9:30 pm

teen persuasion wrote:
Wed Jun 20, 2018 5:22 pm
I'm not using a 529, but my DD1's university also had early Aug bill deadlines for fall semester and early Dec bill deadlines for spring semester. Originally I was irked at how early they were, but I later saw the advantage for college tax credits. It neatly places an entire school year's bills in a calendar year, rather than a half year's bills followed by 3 full year's bills and a final half year's bills at graduation. The AOTC can only be claimed in 4 years. I had much fewer troubles matching scholarships and grants vs tuition and R&B at tax time (how much to claim as taxable income?) for DD1, than I did for DS2, DD3, and DS4, all of whose schools billed after January 1 for spring semester.
If you're not using five tax years to pay for four academic years, you're potentially missing the opportunity to claim a year's worth of Lifetime Learning Credit in addition to four years of the AOTC.

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Lieutenant.Columbo
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Re: 529 Withdrawal TIming

Post by Lieutenant.Columbo » Fri Jun 22, 2018 4:36 am

DIFAR31 wrote:
Thu Jun 21, 2018 9:30 pm
...a year's worth of Lifetime Learning Credit in addition to four years of the AOTC.
DIFAR31,
do you know if paying for higher education expenses with a 529 prepaid tuition plan (instead of a 529 savings plan) determines whether one might be eligible for the LLC and/or the AOTC?
Thank you.
Lt. Columbo: Well, what do you know. Here I am talking with some of the smartest people in the world, and I didn't even notice!

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dogagility
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Re: 529 Withdrawal TIming

Post by dogagility » Fri Jun 22, 2018 5:45 am

GoldStar wrote:
Wed Jun 20, 2018 8:58 pm
I'm not following what the headache is. My kids' spring semester Bill's were/are always due in December (and I make a single in full payment with a 529 withdrawl). The expense is the year before the kid actually goes to school but this isn't relevant - the expense and payment and withdrawl still all occur in the same year. Sorry - I am missing something.
Agree. I don't see the issue either.
"The stock market is a device for transferring money from the impatient to the patient" -- Warren Buffett

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teen persuasion
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Re: 529 Withdrawal TIming

Post by teen persuasion » Fri Jun 22, 2018 8:46 am

DIFAR31 wrote:
Thu Jun 21, 2018 9:30 pm
teen persuasion wrote:
Wed Jun 20, 2018 5:22 pm
I'm not using a 529, but my DD1's university also had early Aug bill deadlines for fall semester and early Dec bill deadlines for spring semester. Originally I was irked at how early they were, but I later saw the advantage for college tax credits. It neatly places an entire school year's bills in a calendar year, rather than a half year's bills followed by 3 full year's bills and a final half year's bills at graduation. The AOTC can only be claimed in 4 years. I had much fewer troubles matching scholarships and grants vs tuition and R&B at tax time (how much to claim as taxable income?) for DD1, than I did for DS2, DD3, and DS4, all of whose schools billed after January 1 for spring semester.
If you're not using five tax years to pay for four academic years, you're potentially missing the opportunity to claim a year's worth of Lifetime Learning Credit in addition to four years of the AOTC.
Ah, true for some. The lifetime learning credit is nonrefundable, so of no use to us, unfortunately.

Also, the kids have tended to shift to non-dependents at some point in their college years, so we (parents) only got to claim the AOTC for < 4 years each, and the child may/may not be able to claim AOTC afterwards due to limitations. I don't think we've ever claimed 2 AOTC at a time, although all the kids overlapped a few years with the next one.

We will see what the situation is when DS5 is the lone one in college in the future. Thanks for the tip - nonrefundable credits may be useful for Roth conversions after FAFSA reporting is past.

DIFAR31
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Re: 529 Withdrawal TIming

Post by DIFAR31 » Fri Jun 22, 2018 10:20 am

Lieutenant.Columbo wrote:
Fri Jun 22, 2018 4:36 am
DIFAR31 wrote:
Thu Jun 21, 2018 9:30 pm
...a year's worth of Lifetime Learning Credit in addition to four years of the AOTC.
DIFAR31,
do you know if paying for higher education expenses with a 529 prepaid tuition plan (instead of a 529 savings plan) determines whether one might be eligible for the LLC and/or the AOTC?
Thank you.
The same prohibition against double dipping (using the same qualified expenses for claiming an education tax credit and paying with 529 funds) that applies to a 529 savings plan is also applicable for a 529 prepaid tuition plan. Paying qualified expenses with either kind of 529 plan does not necessarily make a taxpayer ineligible for the LLC or AOTC; it does effect which qualified expenses can be used in claiming an education credit.

SurfCityBill
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Re: 529 Withdrawal TIming

Post by SurfCityBill » Wed Jun 27, 2018 1:33 pm

dogagility wrote:
Fri Jun 22, 2018 5:45 am
GoldStar wrote:
Wed Jun 20, 2018 8:58 pm
I'm not following what the headache is. My kids' spring semester Bill's were/are always due in December (and I make a single in full payment with a 529 withdrawl). The expense is the year before the kid actually goes to school but this isn't relevant - the expense and payment and withdrawl still all occur in the same year. Sorry - I am missing something.
Agree. I don't see the issue either.
+1. My son is on the quarter system. Tuition payments are due, Sept, Dec, and Mar. So, for a 12 month calender year (not the school year), I pay Mar, Sep, and Dec and withdraw accordingly.

Topic Author
Leesbro63
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Re: 529 Withdrawal TIming

Post by Leesbro63 » Wed Jun 27, 2018 2:54 pm

It sounds like perhaps the IRS has finally gotten up to speed with 529 withdrawals. I haven't seen any comments here lately regarding issues. In the past there were a lot of posts about it.

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