529 Excess Withdrawal

[enfiteosis]

Hi, I withdrew my entire 529 to my college in 2020, which was a couple thousand over the educational expenses for the two remaining semesters (I graduate in May 2021). The college returned the excess money in 2021.

Do I pay taxes on this excess withdrawal for the year 2020 or 2021?

[enfiteosis]

Hi, I withdrew my entire 529 to my college in 2020, which was a couple thousand over the educational expenses for the two remaining semesters (I graduate in May 2021). The college returned the excess money in 2021.

Do I pay taxes on this excess withdrawal for the year 2020 or 2021?

[Hal_Al]

2020, the year of the distribution (withdrawal)

[enfiteosis]

Thanks for the response!

In 2021, I have spent a few thousand dollars on housing and food while enrolled, which could probably cover the excess withdrawal.

However, I withdrew and made the payment to the college in 2020 and they only returned it in 2021. How would this work?

[Hal_Al]

I don't think there's official IRS guidance on that situation. I'm of the opinion that since the money was refunded in 2021 and then spent, on qualified expenses, in the same year (2021), it's still a qualified distribution. 

[enfiteosis]

So to confirm, if the 1098-Q was from 2020, counting it as a qualified distrbibution would still be okay?

[Hal_Al]

Yes, in my opinion (that's the way I would do it).