Savingforcollege.com
Topic Options
#45605 - 12/10/09 02:25 PM 529 Withdrawals - IRS answer
marble Offline
Junior Member

Registered: 04/13/06
Posts: 16
Loc: USA
I recently spoke with the IRS. My question to them was:

We just received the tuition/R&B bill for the spring semester. The bill is due Jan 1 and we start incurring late charges if not paid by then.

Can we take a distribution from the 529 account now (in Dec. ) for charges that are due Jan 1 and are for the spring semester.

After much research by the IRS agent (and she also discussed it with her supervisor) they decided that is was ok to take a distribution now for charges due in Jan. They said to just keep our paperwork so we can prove we used the distribution money for qualified expenses.

They said the publication that discusses 529 distributions just states that the distributions must be for qualified expenses but it does NOT state that the expenses must be incurred in the same tax year.

We will receive the tax form (1098Q maybe?) for this tax year but it is okay to do this as long as we can prove we used the money for college expenses.

Does anyone have any idea if they gave me the right answer? They were very friendly and helpful but I want to make sure they researched it correctly.

Thank you

Top
#45606 - 12/10/09 04:01 PM Re: 529 Withdrawals - IRS answer [Re: marble]
Joe Hurley Offline

Member

Registered: 01/07/00
Posts: 2734
Loc: Pittsford, NY, USA
marble,

Their conclusion was correct. You need to pay the expenses in the same year as the distribution. No problem with paying this year for next year's room and board.

You do not necessarily have to pay it directly out of 529 distribution money - you can use any money (or charge cards, or loans, etc.)

True, Publication 970 does not state that the expenses must be incurred in the same tax year. But it also does not state that chickens have feathers. As a cash basis taxpayer, you must account for things like qualified higher education expenses and 529 distributions based on when you receive and pay money (or money equivalents), at least until IRS specifically says otherwise.

[CMA: This is not legal or tax advice. You should rely on your own tax adviser.]

Joe

Top
#45607 - 12/10/09 04:12 PM Re: 529 Withdrawals - IRS answer [Re: Joe Hurley]
marble Offline
Junior Member

Registered: 04/13/06
Posts: 16
Loc: USA
Thanks Joe for your reply.

So to summarize (I am not sure I 100% understand your answer):

I can send the 529 distribution form to the 529 account folks now. They will send the distribution check directly to my child's college this month.

So everything will be paid by the end of this month. This is all for expenses due Jan. 1 for next semester.

We get the 1098Q form for a distribution this year but everything is okay (no tax penalties or such) since we have used the money for qualified expenses. So the fact that we paid the money in the same year we took the distribution makes everything okay? Even though for next year expenses?
Thanks

Top
#45616 - 12/11/09 06:46 PM Re: 529 Withdrawals - IRS answer [Re: marble]
Joe Hurley Offline

Member

Registered: 01/07/00
Posts: 2734
Loc: Pittsford, NY, USA
Yes, that is correct and makes everything okay. Except it is a 1099-Q that gets sent to your student. Don't get it confused with the 1098-T that schools send out and which are basically meaningless.

Joe

Top


Moderator:  Joe Hurley 

All Content Copyright © 2013 Saving for College, LLC, All Rights Reserved, Terms of Use.