topic Refunds made by School in Education

Refunds made by School

StephenDSH — Thu, 25 Jun 2020 18:05:56 GMT

Receive a refund for part of the Spring 2020 semester. I paid for that semester in 2019 with money withdrawn from NY529. Is there a tax penalty if I just hold on to that refund?

Re: Refunds made by School

Hal_Al — Tue, 30 Jun 2020 19:40:57 GMT

Q. Is there a tax penalty if I just hold on to that refund?

A. Yes.

You have 60 days, from the date of the refund, to put the money ("re-contribute") back into the 529 plan, to avoid that part of the original distribution being considered "non qualified". "Non qualified distributions are subject to tax plus a 10% penalty on the earnings portion of the distribution.

For 2020, the IRS has issued temporary guidance to extend the usual 60 day redeposit window so that you may return tuition refunds to the 529 plan by July 15, 2020 in order to avoid a situation where the funds create taxable income. When returning contributions to the plan sponsor, be sure to indicate that the funds are a recontribution by including a letter of instruction or other notation with the funds.

Re: Refunds made by School

StephenDSH — Tue, 30 Jun 2020 18:27:26 GMT

There is no tax penalty if I apply the amount received by the school to this year's education expenses. I saw it on the NY 529 website.

Re: Refunds made by School

Hal_Al — Tue, 30 Jun 2020 19:42:15 GMT

@StephenDSH

Can you provide a link to the NY529 website post?

Re: Refunds made by School

StephenDSH — Wed, 01 Jul 2020 15:14:19 GMT

My college refunded tuition paid with 529 Plan funds. What do I do?

May 01, 2020 : H&R Block

In most cases, if your college issues a refund for a qualified expense, you have 60 days to reinvest the money back into your 529 account. Right now, you might be counting the days since your college issued the refund to see if your 60-day window has passed. Luckily, recent IRS guidance gives you some additional time to recontribute the refunded amount back to your account.

With the IRS announcement, you have the following options:

Redeposit the refunded amount by July 15, 2020, or 60-days after the refund was issued, whichever date is later.
Apply the funds to other qualified expenses later this year. Be sure to spend it on expenses for the fall semester as the funds need to be used by December 31, 2020.