Reimbursement from 529 plan

[YM23]

I paid $400 deposit by credit card for my son's college tuition on August 2023, but I forgot to get the reimbursement from the 529 plan. Can I get the reimbursements from the 529 plan now before the tax due or is it too late that I need to get reimbursed during the calendar year 2023? Do I get any penalty if I get the reimbursement now? Thanks.

[DawnC]

There is no tax due or penalty for not taking a 529 plan disbursement.    As long as the money you take out of the 529 plan is used on qualified educational expenses (QEE), there is no tax or penalty.   You just can't take an education credit for anything you pay with 529 funds.   

You have to check with the 529 plan administrator to find out the exact rules are for reimbursements - but there is no tax penalty incurred for taking a distribution, before or after you pay for QEE.  The tax comes in play only if you use distributed funds for things other than QEE.  

[YM23]

Thank you very much for your response.

[Hal_Al]

Q. I paid $400 deposit by credit card for my son's college tuition on August 2023.Can I get the reimbursements from the 529 plan now before the tax filing deadline?

A. No.  To be a qualified distribution, the money must be taken out in the same calendar year that you had qualified expenses.

Q.  Do I get any penalty if I get the reimbursement now?

A. Simple answer: yes. But if you have other qualified expenses, later in 2024, you can count those expenses against this $400 distribution. 

[joelevy]

Really?  Where is this stated in the IRS rules that it has to be the same year?  I think you can withdraw anytime.

[Hal_Al]

Q. Where is this stated in the IRS rules that it has to be the same year?

A. IRS Publication 970, which says, in part:

"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 AQEE"

https://www.irs.gov/pub/irs-pdf/p970.pdf

Also, see previous discussions on this topic:

https://ttlc.intuit.com/community/college-education/discussion/529-provider-distributed-funds-on-12-...

https://ttlc.intuit.com/community/college-education/discussion/i-took-a-529-distribution-in-2021-for...

https://www.savingforcollege.com/article/timing-of-529-plan-distributions-must-match-qualified-expen...  

[joelevy]

I'm not sure you're right.  Do you know of cases to confirm this.

1. The language in the doc you linked just says you need to compare all QTP distributions for the year to the AQEE. But it doesn't say the AQEE has to be from the same year.

2. Further, see this discussion  I've also see similar in many other places.  in 2008 the official word was:

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.

But I can't find record they actually went through with this change.  So they admitted it's unclear and never clarified. Or do you have evidence they clarified this?

Here's another even better thread on the topic

https://www.reddit.com/r/tax/comments/16ytao5/529_retroactive_withdrawals/

[Hal_Al]

Q. Do you know of cases to confirm this?

A. No. 

Q.  Do you have evidence they clarified this?

A. No.  I did note that the wording in Pub 970, for ESA distributions, is clearer than in the QTP section. 

"Whether the distributions are tax
free depends, in part, on whether the distributions are
equal to or less than the amount of Adjusted qualified education expenses (AQEE) (defined later) the beneficiary has in the same tax year." (ESA distributions)

[joelevy]

Isn't that for a Coverdale ESA? That's not the same. I'm not talking about xfering into a Coverdale.