Timing of 529 Plan Distribution and Tuition Payment

Forum|Forum|3 years ago
February 28, 2023
2 replies
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I requested a 529 distribution to pay my son’s college tuition for the spring 2023 semester. The withdrawal was processed on 12/30/2022 so it was included in the gross distribution on the 2022 1099Q. The tuition payment, though, was not included on the 2022 1098T from the school. So, it looks as if my son took excess distributions in 2022 and will be taxed for those. I understand the tax year/school year discrepancy but, in order to pay his bill on time, we submitted the distribution request in late December. The 529 plan documentation states that to insure the years are aligned, submit the withdrawal request directly to the school (which we did). This should tie the sending of the distribution to the school for the appropriate tuition payment.

Am I able to add this 2023 tuition payment to the value on the 1099T because the distribution was meant for this tuition and was sent directly to the school? I will then need to exclude this tuition payment on the 2023 tax returns.

Thank you.

KrisD15

Yes, it is a bit convoluted, but your intent was to use the distribution for education expenses and the fact that the distribution crossed the calendar year by a few days seems forgivable.

The IRS does allow payments to be made for the first three months of the following year.

BE SURE to adjust expenses on the 2023 1098-T.

In TurboTax use the "What if this was not what I paid?" link under Box 1 on the 1098-T screen and enter the larger amount.

Next year do the same only enter the lesser amount.

According to the IRS:

"...Payments made in 2022 for academic periods beginning in 2022 or beginning in the first 3 months of 2023..."

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jeffbrand4Author

There are some differing opinions on this subject. I would prefer an approach that's more solid than "seems forgivable", but I will use this approach. Thanks.

AmyC

Employee

I believe you are saying that you paid the school in 2022 but so close to the year end that it did not process until 2023 and is therefore not included on the 1098-T. Those are still qualified education expenses since they were processed in the first 3 months of 2023. Select the option for paid a different amount for expenses. You are correct that you would deduct those expenses for the next year. Keep a paperwork trail.

Qualified Education Expenses - Internal Revenue Service states: Qualified expenses are amounts paid for tuition, fees and other related expense for an eligible student that are required for enrollment or attendance at an eligible educational institution. You must pay the expenses for an academic period* that starts during the tax year or the first three months of the next tax year.

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Hal_Al

Employee

From Pub 970 (page 60: To determine if total distributions for the year are more or less than the amount of qualified education expenses, you must compare the total of all QTP distributions for the tax year to the adjusted qualified education expenses.

There's not a clear-cut answer. See these previous discussions:

https://www.savingforcollege.com/article/timing-of-529-plan-distributions-must-match-qualified-expenses

https://ttlc.intuit.com/community/college-education/discussion/529-provider-distributed-funds-on-12-30-for-spring-semester-resulting-in-a-mismatch-between-1099q/01/2200938/highlight/false#M41204

https://ttlc.intuit.com/community/college-education/discussion/i-took-a-529-distribution-in-2021-for-a-bill-due-jan-1-2022-is-there-a-way-to-reconcile-the-tax/01/2664891/highlight/false#M46863