529 Withdrawal Due to Attempted Scam

Forum|Forum|3 years ago
November 16, 2022
1 reply
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I was a target of an attempted scam. I transferred all of the funds from two 529 accounts to my checking account. Fortunately, I figured out it was scam. I've been trying to move the funds back into the 529s since early September. At least three institutions are involved the 529 administrator, 529 broker and my bank. The indemnification paperwork was lost between the broker and bank. I am now outside the 60 day window to return the funds to the 529s. If I'm able to return the funds by year end, will I have any tax liability? I've documented all my 20+ and counting conversations with the institutions.

pmurphy3

Level 4

There does not seem to be any hard or fast rules or case law on the situation you describe. You need to light a fire under the financial institutions, they have put you at risk. Go ahead with the re-contributions. Ask the institutions to void the subsequent Form 1099-Q, Payments From Qualified Education Programs. Remind them that they made the error that led to the issuance of this form.

However, be prepared for the result to be an early distribution. You will not be be charged taxes on the contributions returned to you, only on the increase and there will also be a 10% penalty on the early distribution, Again, only on the increase in value.

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