I agree ONLY if you are referring to education credits but not otherwise. Your statement above actually refers to Qualified Education Expenses for Education Credits
The Internal Revenue Code of 1986 has an explicit exception for the AOTC at 26 USC 25A(g)(4) that allows one to prepay expenses for an academic period that begins during the first three months of the next tax year. There is no similar statutory language for 529 plans.
So although you won't find a rule on this explicitly stated anywhere in IRS publications or tax forms, the prevailing view by tax professionals is that 529 withdrawals must match up with the payment of the qualifying expenses in the same tax year. If you withdraw the money in December for a tuition bill that isn't paid until January, you risk taking a taxable withdrawal because you didn't have sufficient qualified education expenses during the year of withdrawal.
Timing of 529 Plan Withdrawals
How to Take a Tax-Free Distribution in 4 Steps
The tricky timing of 529 savings account withdrawals
Step 2: Determine When to Withdraw
You should take 529 plan distributions during the same year you paid for the qualified expenses. For example, do not include second-semester tuition expenses that you paid for in December of the previous year.
It doesn’t matter if you withdraw funds in January for expenses not paid until August. Or if the withdrawal occurs in December for expenses previously paid during that year. Make sure they match up within the same calendar year, not the academic year.
If you withdraw the 529 money in December for a tuition bill that isn’t paid until January, you risk not having enough QHEE during the year of the 529 withdrawal. Likewise, if you take a distribution in January to pay for expenses from the previous December, that distribution will be non-qualified.
Towards year-end, 529 account owners should determine exactly how much was spent on qualified expenses during the year and make the appropriate “catch-up” distribution from the 529 plan. As part of this process, determine if the AOTC is maximized by paying second-semester college bills in December versus January.
