Your 529 Plan and School Refunds

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Jun 01, 2020

By Rob Myers, CFP®Partner at World Trend Financial

Rob Myers.jpg Did you use 529 funds to pay for tuition or room and board at a college, or qualifying K-12 institution, for the 2020 Winter/Spring semester? Many of   these educational facilities will be issuing partial refunds soon due to sending students off campus for online only instruction in March.

 The PATH Act, which was signed into law December 15, 2018, includes the following provision about the taxability of that refund: The portion of   such a distribution refunded to an individual who is the beneficiary of a 529 Plan by an eligible educational institution is not subject to income tax   to the extent that the refund is recontributed to a 529 plan of which that individual is the beneficiary not later than 60 days after the date of such   refund and does not exceed the refunded amount. In other words, if you deposit the amount of the refund received, within 60 days of the date of   the refund, back into their 529 plan, there is no taxable event.

 In some cases, rather than sending a separate check, the money may be deposited into the student’s university account. What should you do? If the   funds are left in the student’s school account, and then used for Fall qualified expenses, it should not be considered a taxable event. However, this option certainly comes with some risk should the Fall semester be completely cancelled. By the time you would know this for sure, it is likely too late to utilize the “60-day rollover” option.

Be sure to check in with your student regarding any refunds of tuition or other eligible 529 costs. It is best to deposit an equal amount back into their 529 account within 60 days of the date of the refund, along with a letter of instruction stating the circumstances. These refunds that are redeposited do not impact the amount of contribution that can be made in 2020 into a 529 plan.

Rob can be reached at rmyers@tld-inc.com to discuss your specific situation. Feel free to reach out to any of the accountants or financial representative advisors at Terry Lockridge & Dunn or World Trend Financial. They can be reached at 319-364-2945 in Cedar Rapids, or 319-339-4884 in Iowa City.



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