Withdrawals from 529 Account and Timing of Expenses
Am I allowed to take a distribution/withdrawal from my 529 Account for tuition from a previous year.
I've reviewed Chapter 7 of IRS 970 Publication as well as the FAQ's provided by IRS 529 FAQs and there is no mention of a timing requirement where the qualified expenses have to occur in the same year as the withdrawal. I'm wondering if one could treat a 529 similar to an HSA account that also has no restrictions for the timing of qualified medical expense and when you make a claim, as along as the medical expense occurred after the HSA was created.
If someone could provide an answer with a thorough explanation and reasoning that references actual tax code on what is permissible, I would greatly appreciate it!
Comments
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Hi knuckles! We appreciate your question. This situation can be a little tricky because while a person may withdraw amounts from the account, it is the taxability of the withdrawal that will change.
In chapter 7 of Publication 970, the IRS includes the section "Figuring the Taxable Portion of a Distribution." Here it specifically references "the tax year" and comparing the QTP distributions to the adjusted qualified education expenses (AQEE). So while one may take a distribution in a later year, if there are not enough adjusted qualified education expenses to offset it, more of the distribution may be taxable on the return. Page 52 of the publication breaks this down pretty well with an example of a student having a tax free partial tuition scholarship as well as a QTP distribution.
I hope this helps clarify the information a bit better!
