529 withdraw for college draft on 1st Jan...

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rob
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529 withdraw for college draft on 1st Jan...

Post by rob »

What's the general thoughts on a college bill that will auto deduct on the 1st of Jan 23.... Can I withdraw the $$ from the 529 in 22 ahead of the draft or do the tax years need to strictly match?
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SmileyFace
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Re: 529 withdraw for college draft on 1st Jan...

Post by SmileyFace »

I have read that you should always withdraw the money in the same calendar year as when payment is made. So if you want to withdraw in 2022 pay in 2022 (e.g. pay on Dec 30th instead of Jan 1 or 2).
See "Step 2": https://www.savingforcollege.com/articl ... r-529-plan
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rob
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Re: 529 withdraw for college draft on 1st Jan...

Post by rob »

Thx, yeah I might just make the withdraw after the 1st and find the cash elsewhere to be sure I don't break the rules.. I think a reasonable person would know a few days ahead is a match but this is the IRS after all :? .

I don't have control over the date since I signed up for 4 equal payments across 4 months and just so happen they do it on 1st of each month... Might reconsider that for next spring semester so I can control the date....
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SmileyFace
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Re: 529 withdraw for college draft on 1st Jan...

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Yeah - I wouldn't risk it in case of audit.
I actually ended up paying directly from my 529 account using their payment system for most semesters. It kept things really clean.
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Re: 529 withdraw for college draft on 1st Jan...

Post by goodenyou »

This issue has always created confusion since colleges want their money early in year for the Spring semester. The calendar year IRS/academic year 529 issue has not been resolved and it creates a headache. I've been through it 12 times with 3 kids in each Spring semester. I usually sent a check to make the deadline and reimbursed myself out of the 529. It requires having a large sum of cash available and then to be made whole by the 529. One time I didn't do that, and my son was deregistered because the 529 took a long time to get to the Registrar. I had one episode when I forgot about the timing and paid in the wrong calendar year in late December. I am not worrying about it. I think the IRS would be reasonable about how stupid this is.
Last edited by goodenyou on Thu Nov 17, 2022 12:32 pm, edited 1 time in total.
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livesoft
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Re: 529 withdraw for college draft on 1st Jan...

Post by livesoft »

It is gonna be hard to do any financial things on January 1 and on January 2. :)
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Re: 529 withdraw for college draft on 1st Jan...

Post by Vulcan »

https://www.govinfo.gov/content/pkg/FR- ... E8-859.pdf
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.
Even though this rule has never been adopted (I think?), it is clear from the text that the IRS is mainly concerned with people withdrawing too late, not too early. If you withdraw in December for January expenses, you should be fine. Especially since "section 529 is silent..."
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Re: 529 withdraw for college draft on 1st Jan...

Post by rob »

goodenyou wrote: Thu Nov 17, 2022 12:27 pmOne time I didn't do that, and my son was deregistered because the 529 took a long time to get to the Registrar
....
I think the IRS would be reasonable about how stupid this is.
I am not letting the 529 plan pay directly because I don't like the lack of control and these amts are too large for me not to be able to see them... so I'm running thru my account. I'm not combining anything so do a seperate txn for every invoice, every book etc. so all the nbrs are in pairs.

I try not to underestimated how STUPID the IRS (or any government entity really) might be on any given day - so seems I know my course :-)

livesoft wrote: Thu Nov 17, 2022 12:32 pm It is gonna be hard to do any financial things on January 1 and on January 2. :)
Yeah I know... but they will likely process the bank draft and with the delay on getting money out of the 529 on the next business day in 23, don't want to risk a bounce so will find some cash elsewhere to cover... These amounts are far too much for me to absorb in the normal cash float of my working bank acct :shock:
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Re: 529 withdraw for college draft on 1st Jan...

Post by rob »

Vulcan wrote: Thu Nov 17, 2022 12:36 pm https://www.govinfo.gov/content/pkg/FR- ... E8-859.pdf
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.
Even though this rule has never been adopted (I think?), it is clear from the text that the IRS is mainly concerned with people withdrawing too late, not too early. If you withdraw in December for January expenses, you should be fine. Especially since "section 529 is silent..."
Appreciate the link and expect your right... but seems a bit too loose with proposed rules etc....
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Re: 529 withdraw for college draft on 1st Jan...

Post by Vulcan »

rob wrote: Thu Nov 17, 2022 1:48 pm Appreciate the link and expect your right... but seems a bit too loose with proposed rules etc....
As things stand, there appears to be no prohibition from early or late withdrawals. The proposed rules sought to tighten the qualifications, not to loosen them.
If you torture the data long enough, it will confess to anything. ~Ronald Coase
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Re: 529 withdraw for college draft on 1st Jan...

Post by hvaclorax »

Did your student scholar lose amateur status? Pros get drafted. By then they pay their own way.
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