529 Plans: Refunds for University Expenses

In response to COVID-19 restrictions, some universities are issuing partial refunds for the semester. These refunds could be associated with expenses such as room & board, meal plans, and/or tuition.

A complication exists if a withdrawal was made from a 529 to cover these refunded expenses. Typically, refunds should be recontributed to the 529 to avoid tax on the original distribution. Under normal circumstances, the recontribution must be done within 60 days. The IRS has granted an extension on this 60-day window for any refunds issued on or after 2/1/2020. Individuals now have until 7/15/2020 to recontribute the funds to the 529 plan.

It’s important to note that the repayment can be avoided if the student is expected to accumulate other “qualified higher education” expenses throughout the course of this year. This is true even if the expenses occur after the 7/15/2020 repayment deadline.

If you have questions about your scenario, contact your advisor.