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Financial Planning / Tax Strategies


Subject:  Re: Education Accounts Date:  8/17/2012  3:26 PM
Author:  vaking Number:  116538 of 128291

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:
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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