topic Re: 529 payment check not encashed by school, student drops out of college in Education

529 payment check not encashed by school, student drops out of college

Rsvp2024 — Mon, 22 Sep 2025 17:52:17 GMT

1. Son enrolled in Fall Semester for 2 courses. Paid fees from personal bank account as the tuition deadline was too close to send from 529 plan as their usual check delivery to school can take 2-3 weeks.

2. Later son decided to enroll in one more course totaling 3

3. Sent payment for all 3 courses from 529 as this was a qualified withdrawal and I know school would refund the previously sent money (2 courses)

4. Son decided to defer his Fall semester and dropped out of Fall semester

5. School issued a check for the 2 courses paid from personal bank account

6. School did not encash the 529 check (for 3 courses) and sent it back to us

Vanguard (529 plan) says since the school has not encashed the check and sent a refund to the plan owner, cannot do a recontribution to the same student. Instead they can stop payment and contribute the amount to another (student's brother) account as a rollover contribution to avoid Tax consequence.

Is there any other option around this?

Thank you

Re: 529 payment check not encashed by school, student drops out of college

Hal_Al — Mon, 22 Sep 2025 22:51:24 GMT

That doesn't make sense. I would talk to somebody else at Vanguard.

If the check is cancelled, the distribution was cancelled (there was no distribution). Vanguard may mistakenly issue a 1099-Q, but an erroneous 1099-Q can usually be ignored.

Re: 529 payment check not encashed by school, student drops out of college

Rsvp2024 — Mon, 22 Sep 2025 22:52:55 GMT

I spoke to 3 different advisors at Vanguard all gave the same reply. Thanks for your response.