529 Plans and Covid-19

Dear Friends and Clients,

In March, I had to bring home my college boy because his university was exercising caution and having all students leave campus to avoid the spread of the coronavirus.  We appreciated this as we want him to be safe and healthy, and were very happy to have him home.  

As the university still expected their tuition bill to be paid, I paid it at the end of March from his 529 plan.  His university, like many across the country, has done the right thing and refunded both room and board for spring quarter.  This refund is much appreciated, however it's important to note that this presents a potential tax issue for parents and students.  Since the refunded amount is no longer being used for qualified educational expenses, the IRS could recharacterize it as a taxable distribution.  This  could translate into a 10% penalty and income taxes on the distribution's earnngs.  

In order to avoid this, consider recontributing the refunded amounts back to the 529 account.  This must be done within 60 days from the refund date.  In order to manage this correctly, contact your 529 plan custodian, and explain what you would like to do.  I called Fidelity Investments 529 plans, and they explained exactly how to take care of it.  They are getting plenty of calls regarding this, as everyone is in a similar situation.  It was super easy and I can sleep better knowing I won't get hit with an unexpected tax bill.  If you have any questions, please feel free to contact our office. Stay well.

529 Plans and Covid-19
New Tax Law-CARES Act (Part 2)



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Vestpointe Wealth Management
7373 E. Doubletree Ranch Rd.,
Suite 175
Scottsdale, AZ 85258
Phone: 602-212-1040
Hours of operation:
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