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!
Answers
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knuckles,
That is a great question!
While there isn't clear guidance directly from the IRS regarding the timing of distributions, Section 529(e)(3) of the Internal Revenue Code states:
"The amount of cash distributions from all qualified tuition programs described in subsection (b)(1)(A)(ii) with respect to a beneficiary during any taxable year shall, in the aggregate, include not more than $10,000 in expenses described in subsection (c)(7) incurred during the taxable year."
https://www.law.cornell.edu/uscode/text/26/529
I interpret "incurred during the taxable year" to mean that expenses must be incurred within the taxable year in which you take the withdrawal from the 529 plan. If you take a distribution in a different year from when the expenses were incurred, the withdrawal may not qualify for tax-free treatment.
