Mis-timed 529 Distribution

Forum|Forum|2 years ago
February 26, 2024
2 replies
71 views

I took a distribution from a 529 in December 2023 to pay for tuition in January 2024. Now my 1099Q does not match my 1098T for calendar year 2023 due to the early distribution. Is there a way to rectify this and not be taxed for the December distribution that did get applied to January tuition?

KrisD15

Level 15

Yes.

If Box 1 does not reflect the payment made with the December distribution, use the "What if this is not what I paid" link under Box 1 on the 1098-T screen and add that amount.

Be sure to adjust the other way (subtract the amount from Box 1) next year.

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Pip_12_mn

Level 6

Has there been a change in IRS guidance for this? To make a tax free W/D from the 529, the W/D has to happen the same year as the expense. To my knowledge the only exception to the calendar year timing rule relates to claiming the AOTC credit.

Timing of 529 Plan Withdrawals

AmyC

Level 15

No. The 1099-Q rules: IRS Publication 970, Tax Benefits for Education states:

If the entire 1099-Q went to qualified expenses, room and board, tuition, etc then you do not need to enter the form. Tuition paid for the first 3 months of the next year also qualify, see page 12, What Expenses Qualify, and page 52 for qualified distributions.

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Pip_12_mn

Level 6

As long as you are able to use the W/D for the AOTC or Lifetime learning credit, the distibution and expenses don't have to happen in the same calendar year. If you don't qualify for the credit, such as if MAGI is too high, then all expenses would have to happen in the same calendar year as the 529 distribution for them to be tax free.

You would not have to include the 1099-Q with the return if all the expenses were qualified, but they are not qualified if they dont line up in the same calendar year as distribution, with the exception of qualified AOTC and Lifetime Learning related expenses.