Covid-19 and your 529 Plan

Covid-19 and your 529 Plan

April 27, 2020

Because almost every college has gone to online education and no dorm living for the Spring 2020 term,  parents may be getting a refund from your student’s school.  While most schools are not giving tuition reimbursements, they are processing reimbursements for Room and Board. 

While this is a nice break, if you took money out from a 529 to pay for these costs, you may want to consider if this will create an issue in which your might have to pay a penalty.  In general, the IRS requires you to match qualified expenses with qualified 529 distributions.  If a Room and Board credit now reduces your expenses, you might have too much in distributions.  This could lead to a 10% penalty.

For most parents this likely is not a problem but something to be aware of.

If you have a Freshman or Sophomore (getting a Room & Board credit), you can just adjust your Fall 529 distributions so that they are less than the cost. That way you will have a full year of cost and expense that still match. 

If you have a Junior or Senior, they often are living off campus and those room and board costs have not changed. Because of that, you likely would not get a credit so you will still have a match of cost/expense and no action would be necessary.

If you are concerned about your distribution not matching expenses, you should be able to re-deposit the funds into the 529.  Since each plan is run differently, you will need to contact them directly to know their process for refunding these dollars.

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