Could excess 529 distribution be reversed?

Forum|Forum|3 years ago
May 30, 2022
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CA ScholarShare 529 - entering college this fall and educating myself on 529 distribution strategies. I understand that if a college issues a tuition refund for a dropped class for example, that amount can be re-contributed back to the 529 plan.

(a) Can this refund go back to the original plan or it must be a new one?

(b) What if "I" make a calculation mistake and withdraw more than the qualified expenses - can I re-contribute it back?

TIA

529 Plan

Best answer by Hal_Al

Q. I understand that if a college issues a tuition refund for a dropped class for example, that amount can be re-contributed back to the 529 plan?

A. Correct. But it must be done within 60 days of receiving the refund.

Q. Can this refund go back to the original plan or it must be a new one?

A. Either.

Q. What if "I" make a calculation mistake and withdraw more than the qualified expenses - can I re-contribute it back?

A. Yes, but it must be done within 60 days of taking it out (or from the date of a refund). A "re-contribution" is technically classified a s a refund.

You may use an excess distribution for expenses, later in the same calendar year. So, for example, you over withdraw for the Spring term, you can count that money for Fall expenses. The opposite is not true. If you over withdraw for the Fall term, you cannot use that money to pay for expenses in the Spring of the following year. To be "qualified", withdrawals (distributions) must be in the same calendar year that expenses were paid. So, if you paid for Spring 2022 expenses in December 2021, that could be counted for a 2021 529 plan distribution.

Hal_AlAnswer

Employee

Q. I understand that if a college issues a tuition refund for a dropped class for example, that amount can be re-contributed back to the 529 plan?

A. Correct. But it must be done within 60 days of receiving the refund.

Q. Can this refund go back to the original plan or it must be a new one?

A. Either.

Q. What if "I" make a calculation mistake and withdraw more than the qualified expenses - can I re-contribute it back?

A. Yes, but it must be done within 60 days of taking it out (or from the date of a refund). A "re-contribution" is technically classified a s a refund.

BK2000Author

Thank you @Hal_Al ,

I am clear on your response. So if I were to summarize and over-simply it: One should do their best to plan and calculate accurately, but since we make calculated assumptions for the tax year which may be slightly off, it is okay because it can be corrected as long as it is within the guidelines (i.e. 60-days).