topic 529 Excess Withdrawal in Education

529 Excess Withdrawal

enfiteosis — Fri, 07 May 2021 20:24:22 GMT

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?

Re: 529 Excess Withdrawal

Hal_Al — Fri, 07 May 2021 23:21:02 GMT

2020, the year of the distribution (withdrawal)

Re: 529 Excess Withdrawal

enfiteosis — Sat, 15 May 2021 01:03:27 GMT

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?

Re: 529 Excess Withdrawal

Hal_Al — Sat, 15 May 2021 01:26:19 GMT

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.

Re: 529 Excess Withdrawal

enfiteosis — Sat, 15 May 2021 03:32:28 GMT

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

Re: 529 Excess Withdrawal

Hal_Al — Sat, 15 May 2021 11:49:06 GMT

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