12/31/20 distribution mismatch

[anneehlert]

For various reasons I waited until 12/31/20 to request a distribution from the 529 plan - Fidelity's site says the date of request governs the distribution timing, but now they tell me I won't receive a 2020 1099-Q, it will 2021 because the funds didn't actually transfer until Jan 2021. We don't have qualified expenses in 2021, the beneficiary has graduated and there are no other children and future education expenses.

I can't find a clear requirement about what constitutes a distribution date - any advice on how much risk if I consider this a 2020 distribution and if I do that how would I would I handle the 2021 tax return when the 1099-Q comes and my qualified expenses are from 202 ? And can I self report a 2020 1099-Q? Or is my only option to just pay the tax on a nonqualified 2021 distribution, which I know is the safest but seems unfair.

[mark]

Although conventional wisdom is to take the 529 withdrawal in the same year as the expense, I don't believe it is actually spelled out that way anywhere. So, you may be fine either way. If you add to that that you initiated the withdrawal on Dec 31, 2020, I would be inclined to use it for 2020. Of course, you shouldn't really take tax advice from a chat board.

[dcandmc]

Although conventional wisdom is to take the 529 withdrawal in the same year as the expense, I don't believe it is actually spelled out that way anywhere. So, you may be fine either way. If you add to that that you initiated the withdrawal on Dec 31, 2020, I would be inclined to use it for 2020. Of course, you shouldn't really take tax advice from a chat board.

IRS Pub 970 does talk about 529 distributions and the payment of qualified expenses those distributions are attributed to as happening in the same tax year. For instance, when describing how to calculate 529 taxable earnings:

Multiply the total distributed earnings shown on Form 1099-Q, box 2, by a fraction. The numerator (top part) is the adjusted qualified education expenses paid during the year and the denominator (bottom part) is the total amount distributed during the year.