Did you get a refund for your college student’s tuition or room and board? You may need to return the money to your 529 plan to avoid tax penalties.

If your child was in college during the pandemic, you may have received a refund for tuition, fees, or room and board. Which was probably a relief!

But if you used money from a 529 college savings account to pay the tuition/fees, then you may need to put that refund back into the 529 account (or find other eligible fees to match against the distribution) to avoid a tax bill.

The earnings portion of 529 plan withdrawals must be used for qualified higher education expenses to maintain their tax-free status and avoid a 10 percent tax penalty. When you want to recontribute a college refund to a 529 plan, you’ll also want to recontribute the funds within 60 days.

The information provided is not written or intended as specific tax or legal advice. Please seek advice from your own tax or legal counsel.