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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
Category: Tax
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Experience:  10 years experience
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We deducted funds from a 529 account last year but did not

Customer Question

Hello,
JA: Hello. What is your issue regarding?
Customer: We deducted funds from a 529 account last year but did not incur the college expenses until this year. Please advise
JA: The Accountant will know how to help. Please tell me more, so we can help you best.
Customer: What more do you need to know?
JA: Is there anything else the Accountant should be aware of?
Customer: No
Submitted: 4 months ago.
Category: Tax
Expert:  emc011075 replied 4 months ago.

Hi. My name is ***** ***** I will be happy to help you.

What did you use the funds for, if not for college expenses?

Customer: replied 4 months ago.
We deducted them too early.
Expert:  emc011075 replied 4 months ago.

Do you mean to took a distribution last year but did not use it for college expenses? That can be a problem.

Customer: replied 4 months ago.
We took it last year thinking we would need to start paying our daughter's tuition then. But the payments did not become due until this year.
Expert:  emc011075 replied 4 months ago.

Ok. When did you take the distribution? In December or earlier?

Customer: replied 4 months ago.
Checking the date
Customer: replied 4 months ago.
My accountant says "end of year". I have asked if she can be more specific. I am waiting for her response.
Expert:  emc011075 replied 4 months ago.

If it is one or two month before you paid the tuition and you did not have any other distribution for that semester, you can still argue that you used it to pay the tuition and college related expenses. But if it is more than one semester, than you will have a hard time to convince the IRS.

In the worst case scenario you will have to include the earnings, not the entire distribution in your taxable income and claim the entire credit next year.

Expert:  emc011075 replied 4 months ago.

Any questions? Is there anything else I can help you with today?