529 withdrawal question

[tessie]

Does a 529 withdrawal have to be in the same year that the qualified education expense was paid?

I withdrew funds last August to pay for first semester college expenses for my child. Then, in late December I made another withdrawal to pay for second semester college expenses.

For the first withdrawal, the withdrawal and payment of college expenses were both in calendar year 2006. For the second withdrawal, the withdrawal was in late 2006, but the expense was paid in January 2007.

When I figure my 2006 taxes will there be a penalty on the second withdrawal because the funds were withdrawn in 2006, but expenses were paid in 2007?

[Joseph_Hurley_SFC]

It is my opinion that the payment of expenses and the withdrawal of 529 funds must occur within the same calendar year. In other words, I don't think you can count your 2007 college payments against your 2006 529 withdrawals. But you should check with your own tax professional.

Assuming you took both withdrawals from the same 529 plan, you should have received one Form 1099 showing total withdrawals and total earnings. Any tax and penalty will be calculated based on aggregated figures, as described in IRS Publication 970. It's not a matter of one withdrawal being qualified and the other being non-qualified.

Joe

[itstoomuch]

I will not dispute Joe Hurley's statements and opinions on this matter; However, we found that the posting of payments in the student's account was often very slow during the ******mas Season. We would get a student statement around mid Dec which would be different from later statements. By the junior year, I only paid according to the online student's statement and towards the week before the past due date. I was a bit of a irritant to the kid in Dec-Jan because I keep asking him to check the account because I had to have enough time to lineup the money. (Kid's school only sent us two paper statements a year.)

[bwilk]

It would seem that semester based schools that start the Winter semester around the 1st week in January would cause the most problems here since the due date is probably in December for a January start. To be safe you should pay with no 529 funds and then make the withdrawal in January.

[drew]

I also am of the read that a payment and a withdrawal must be in the same calander year (perhaps some debate if kid files on a fiscal year basis) So a Dec withdrawal used to actually pay a bill in next Jan is on WRONG side of the rules --unless the check was actually mailed in late December--perhaps.

Ergo, unless youhave "other qualified expenses " before YE, your YE withdrawal for next years expenses as paid is a nonqualified withdrawal

[itstoomuch]

I am no tax expert but I do realize that there are different proofs of payment. In my last post I bring up the point of the slowness of posting payments. A check written in late Dec and posted in January can get confusing as to when payment is made to the school. There are a lot of intermediatery steps that add time.

I have given an example on another thread on the addition of time. Can you think of different examples of payment, when payment is counted in different ways?

[drew]

If the check was written in Dec but NOT posted until Jan then it made the following year--no wiggle room on that at all as I see it. You lose!

If the check was posted in Dec (and there were funds to pay it) then my read is that it counts in prior year, Dec.

In a different context if you made a gift via check the gift doesn't count until the check actually clears or is debited to your account. So it might get unwise to make massive last minute YE gifts to a 529 via personal check unless you are sure of details.....

[itstoomuch]

^ Your reply is not clear.

[quote]If the check was written in Dec but NOT posted until Jan then it made the following year--no wiggle room on that at all as I see it. You lose!  [/quote]In the month prior to Oregon's 529, Jan 2001,start date, I wrote a check to the 529 people with the 529 creation form, and mail the package at the end of Dec 2000. The letter was postmarked in Dec. The 529 account was created and the monies was posted in the 1st week of January 2001. You are saying that since the check was written and mailed prior to the official opening of the 529, this was a prohibited transaction by the State? And that I would not get the tax credits?

[drew]

That wasn't the question originally posed--in the contect of a qualified expense the payment and withdrawal needing to be in same year to properly count.

I don't know the context of your question about paying into a 529 in Dec 2000 for an account which didn't exist until Jan 2001. And what tax credits? As to Federal issues there may be some wiggle room/debate as to was gift in 2000 or 2001 --but I'll bet its moot. And if the state gave you a state credit --so be it.

But if somebody made a massive gift of say 100K at YE to a plan which did NOT yet exist and took the average beginning in the old year I can see where there could be room for debate IF the question came up---but I doubt the question would ever come up---and in your example the statute of limitation seems to have run out anyway so its moot on that score alone.

[jmwsmom]

OK, so what if I paid by credit card in December 2006, but did not pay the bill until 2007? Can I withdraw funds from my 529 in 2007 without a penalty?

[drew]

I think you are cutting it close as to rules (if anybody ever pulls it up on audit may be very remote)

Generally payment via a credit card counts when made, the fact that you decide to pay your CC some weeks or months later is not the determanitive date. If you paid via CC in 2006 your 529 should match that year to be on safe side of equation in my book.

(The rules for gifts via personal check differ a bit and may not count until consumated by clearing--and IRS can and does pick up on that point if you get into big YE or day of death games with person checks that are not cashed in time!

[sanjeevk80]

can i deposit money in a new 529 plan(CA) and withdraw in the same year or next for my MBA? (i am planning to start MBA on Nov 2018 and it will end in Feb 2020)

[dcandmc]

can i deposit money in a new 529 plan(CA) and withdraw in the same year or next for my MBA? (i am planning to start MBA on Nov 2018 and it will end in Feb 2020)

Yes.

Extra words because the post must be at least 20 characters.