The coronavirus severally disrupted everyone’s lives, and that included your college student. With the decision to shift large student populations off campus, a large amount of educational institutions delivered partial refunds for tuition, meal plans, and housing related costs. If you paid these costs with a 529 plan, you are eligible to refund them to the plan…but you don’t have much time!
How Much Time Do I Have?
You generally only have 60 days from the refund date to not incur any tax or associated penalties. Temporary IRS guidance has provided additional clarity on the timing due to the current health crisis. Therefore, if the 60 day period ends on or after April 1, 2020 but before July 15, 2020, the re-contribution to the plan can be made before the later of July 15, 2020 or that 60 day deadline post the refund date. You will want to recontribute the funds to the 529 plan for that beneficiary.
What If I Need Those Funds For Fall Expenses?
It may make sense to not re-contribute the funds if you are likely to need them in the Fall or for any payments that need to be made in the next few months. However, the IRS considers the re-contributed funds as new contributions so it may be prudent to your planning to put the funds back. The decision is completely unique to each family, so as always, it is advised to consult with your tax professional as well to address your specific situation.
I Want to Re-Contribute The Refund, What Do I Do Now?
Because different sates handle the documentation of re-contributions differently, it is best to contact your 529 plan provider directly. They will be able to walk you through the specific instructions. Executing the re-contribution to the provider specifications and keeping the necessary documentation required is essential in this process. And don’t forget, you can only re-contribute the amount of refund, not what you had originally withdrew from the plan.
529 plans provide a great way to earmark family funds for those college costs, so taking advantage of re-contributing the refund in our current health crisis may be the right choice for you…just make sure you watch the calendar!