23 not included in 2023 1099-Q

Ann3 2024-01-17 20:07:58 UTC #1

Just received the 2023 Form 1099-Q for my son which showed the distribution that I withdrew from his 529 in September 2023, but not the additional $12k amount I requested to be withdrawn on 12/30/23 for 2023 qualified expenses. Evidently the $12k transaction was finalized on 1/2/24 and will show up on the 2024 Form 1099-Q.

Do I have a good argument to say that since the withdrawal transaction was initiated in 2023, it's qualified for 2023, even though it didn't finalize until 2024 and will show on the 2024 Form 1099-Q? Lesson learned to initiate any 529 withdrawals for the year well ahead of December 31st!!

dcandmc 2024-01-18 03:34:15 UTC #2

Your request was made on 12/30/2023, or you requested that the distribution be done on 12/30/2023? Either way, that day was a Saturday (and the start of a holiday weekend), not a business day, and there was no way that A) a request made on that way would be completed before the end of the year, or B) a request to make the distribution that day would be done (not being a business day, and all that), either that day or the next day (a Sunday and the last day of the year).

So no, I don't think you have a good argument that it should have been a 2023 distribution.

Ann3 2024-02-10 18:33:45 UTC #3

Thank you for your reply! I made the distribution request on 12/30/23 (lesson well learned to make it much earlier).

-How about do I have "any" argument to treat as a 2023 distribution? (rather than a "good" argument?)

-Has anyone else had this situation and what did they do?

-Has any tax law been passed that says you must receive the distribution from the 529 in the same year that the expense is paid?

My understanding is that the IRS does not want people to "abuse" the 529 by leaving the money in the account well after the qualified expense is paid in order to take advantage of longer tax deferred growth. In my case the money was left in the account 2 days past the year in which the expense was paid.

Ann3 2024-02-10 21:43:10 UTC #4

**
*correction, I should have said tax free growth, not tax deferred

dcandmc 2024-02-12 04:16:05 UTC #5

You can always make an argument, no matter how unlikely it is that it will be accepted. Was the $12k distribution that you wanted to be done in 2023 used to reimburse qualified expenses that were paid in 2023? Your first post makes no mention of when the corresponding expenses were paid.

Ann3 2024-02-12 20:37:43 UTC #6

Yes, exactly. The $12k qualified expenses were paid in 2023, but the distribution happened 1/2/2024.

There are more qualified expenses that will be paid in 2024 that I could match up with the 1/2/2024 distribution, but then I will be missing out on getting the $12k out of the 529 without tax and penalty on the earnings and also have to come up with the cash for the 2024 expenses from outside of the 529. There is enough in the 529 to cover the 4 years.