I'm trying to plan ahead for distributions from the two educations accounts I have for my daughter, a Coverdell Education Savings Account and a Qualified Tuition Program (529 plan). As with many questions, my question has to do with when things are paid versus when the expenses occurred. I've read Publication 970 but didn't see my issue addressed.Spring semester starts 1/9/2013Spring semester tuition due 12/11/2012Are the expenses occurred when the tuition is paid in 2012 or are they incurred in 2013 since the semester starts in January 2013? I do know that if I take a distribution from either or both accounts in December 2012, I'll receive a Form 1099-Q dated for 2012. If the qualified education expenses are considered to be incurred at time of payment due date (12/11/2012), then there isn't a problem. If the qualified education expenses are considered to be incurred during the academic year (1/9/2013 through 5/7/2013 for the spring semester), then I would have an excess distribution so the distribution would not be tax-free. Should I wait until after January 1, 2013 to take a distribution from either account for the Spring 2013 semester?
Are the expenses occurred when the tuition is paid in 2012 Yes. You look at only what went on during the calendar year--payments and distributions.PhilRule Your Retirement Home Fool
Yes. You look at only what went on during the calendar year--payments and distributions.Thanks. All of that is straightforward and logical which made me scared.
You look at only what went on during the calendar year--payments and distributions.So, just to confirm, if a 529 distribution were taken in 2012 for a payment to be made in 2013, the 2012 distribution would be considered taxable?I have a payment due in early January and don't trust that I could request the distribution January 2nd and receive it in time.Of course, I suppose I could pay it early if it's the payment date that drives it, and not the payment due date..And to answer my own question, it appears that is currently the case:http://www.savingforcollege.com/articles/avoid-these-529-wit...Taking the money in the wrong year.Although you will not find this rule explicitly stated anywhere in the IRS' publications or tax forms, the withdrawals you take from your 529 account must match up with the payment of qualifying expenses in the same tax year. If you withdraw the 529 money in December for a tuition bill that isn't paid until January, you risk not having enough QHEE during the year of withdrawal.The IRS intends to issue a rule that would permit you to include with this year's QHEE the expenses paid during the first three months of next year. But the IRS has not yet provided us with that flexibility.
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