Colleges and universities across the country are closing dining halls and dorms, while shifting to online instruction in an effort to stymie the spread of COVID-19. In many cases, families are receiving refunds for some expenses that 529 funds were used to cover.
This unusual situation has led many to ask: Is it possible to place the money back into my 529 account while avoiding any potential tax ramifications?
Yes, funds can be redeposited into Virginia529 accounts provided these guidelines are followed:
- the funds you wish to redeposit must have been refunded to you by your beneficiary’s eligible educational institution. Please note that refunds from K-12 schools are NOT eligible for recontribution.
- you must redeposit the refund into a 529 account for the same beneficiary from which the original distribution was taken
- the portion of the refund you wish to redeposit must be a refund of qualified higher educational expenses only and
- your redeposit cannot exceed the amount of the refunded amount.
Generally 529 funds must be redeposited from higher education institutions within 60 days of the refund date. However, under temporary IRS guidance, if that 60-day period ends on or after April 1, 2020 and before July 15, 2020, then the redeposit can be made any time before the later of July 15, 2020 or 60 days after the refund date. Customers should complete the Redeposit Request form and upload it online through Virginia529’s secure portal, return it by fax or send it with payments by mail. Processing may take up to 30 days.
This provision does not include refunds from K-12 schools as they are not eligible for recontribution.
As the account owner, you must keep track of all the records showing the date of the refund from the eligible educational institution and then its redeposit into the 529 plan. Additionally, you will need to maintain all documentation linking the redeposit to the refund from the eligible educational institution. You are responsible to make sure this transaction meets the Internal Revenue Service (IRS) requirements and is in good order to avoid possible tax consequences.
Should you have questions concerning this change, you may contact Virginia529 or your tax professional. Consult with your tax adviser regarding the tax implications of any refunds and/or redeposits.