529 plans and withdrawing money

[Anonymous]

My daughter will be graduating in class of 2026, we are looking ahead, How long does it take to withdraw the money from the 529 plan to pays for the semester at the school? Is the money TAX Free or are we going to pay taxes on that in 2027 - for (2026 tax year.)

[Anonymous]

Paid a tuition bill on Friday, did a withdrawal from 529 right after as reimbursement.

Money is in account today (Wednesday).

No taxes due. You just have to keep receipts, records, etc in case anything is asked to prove you used the withdrawal to pay tuition.

When you do the withdrawal (distribution is the technical term) you just indicate it's for an allowable expense and there is no tax paid. In January you will get a tax form 1099-Q. Since it's an allowable distribution, you just keep this form, you don't have to do anything with it. If you withdrew the money for a non-allowed expense, you would have to report it on your tax return and pay a fine, and it becomes taxable income.

[Anonymous]

I do things a bit differently than the pp. When my kids enroll in college, I ask them to make me an "authorized payer." That way, I am notified when tuition & fees are billed. Then I have the 529 plan issue a check directly to the educational institution. Also note that the withdrawals from the 529 need to be in the same year as the expenses. For example, I wait until January 1 to pay spring tuition.

[Anonymous]

Agree with PP.

Also wanted to mention that my plan has an option to send payments directly to the university. They have specific lead times for that. Check with your plan. That helps support a paper trail that the money was spent on education.

A twist you might want to know about is that housing is not a covered expense while the student is not enrolled. So summer housing during a paid internship when the student is not enrolled in college should not be covered with 529 funds tax-free.

[Anonymous]

you can do it either way - have 529 pay directly to school or you pay out of pocket and have it pay to you.

it's tax free.

[Anonymous]

Anonymous wrote:My daughter will be graduating in class of 2026, we are looking ahead, How long does it take to withdraw the money from the 529 plan to pays for the semester at the school? Is the money TAX Free or are we going to pay taxes on that in 2027 - for (2026 tax year.)

- 529 withdrawals for the paying eligible expenses(google for details) are tax free.
- Withdraw in the same calendar year you pay for the expenses. For example, if tuition for Spring 2026 is due before Jan 10th, please wait until Jan 1 to make that payment. If you do pay before Dec 31 2025, withdraw before Dec 31 2025.
- We typically pay the tuition and whatever out of pocket and withdraw funds towards the end of the calendar year. Some people pay the directly. This gets a bit complicated when you deal with multiple payees - the school, the apartment where you rent from, bookstores, food, etc.

In your case, I'm assuming DD will graduate May/June 2026. You will likely pay tuition in Jan 2026, rent and other expenses through May 2026. You could wait until all that is done and withdraw after June 2026 (but before December 2026) or withdraw the tuition in Jan 2026 and the remainder in June 2026. If there's money left in the account after those expenses are covered, those will be taxed (and penalized) on withdrawal.

[Anonymous]

Anonymous wrote:you can do it either way - have 529 pay directly to school or you pay out of pocket and have it pay to you.

it's tax free.

The one time I had my 529 pay the school directly, the 1099-Q came in my son's name, which was a pain in the neck during tax time. Since then, I have paid out of pocket and then had the 529 pay it to me.

[Anonymous]

If the school sends you a bill for the Spring semester in December and you pay it in December 2026 then you should withdraw from the 529 that calendar year (2026).

If you wait to pay it until January 2027 then you should withdraw the cost of the spring semester during 2027.

The only thing you shouldn’t do is pay it in 2026 and reimburse yourself in 2027.

[Anonymous]

Anonymous wrote:I do things a bit differently than the pp. When my kids enroll in college, I ask them to make me an "authorized payer." That way, I am notified when tuition & fees are billed. Then I have the 529 plan issue a check directly to the educational institution. Also note that the withdrawals from the 529 need to be in the same year as the expenses. For example, I wait until January 1 to pay spring tuition.

+1. Our plan was to pay about 1/2 of tuition from 529 funds and the other half out of cash flow. So for each semester, I authorized the 529 plan to send a specified amount to the college, and then I set up a monthly payment plan with the college for the remaining balance.

[Anonymous]

Anonymous wrote:

Anonymous wrote:you can do it either way - have 529 pay directly to school or you pay out of pocket and have it pay to you.

it's tax free.

The one time I had my 529 pay the school directly, the 1099-Q came in my son's name, which was a pain in the neck during tax time. Since then, I have paid out of pocket and then had the 529 pay it to me.

Why? You don't report the 1099-Q on taxes unless you're taking out more than allowed (or for non-allowable expenses). I always have the 529 pay directly. Easiest way to prove the $ is going where it's supposed to.

[Anonymous]

Anonymous wrote:My daughter will be graduating in class of 2026, we are looking ahead, How long does it take to withdraw the money from the 529 plan to pays for the semester at the school? Is the money TAX Free or are we going to pay taxes on that in 2027 - for (2026 tax year.)

If you are in Virginia it is worth noting that the American Funds 529 does not do electronic transfers, only mails a paper check to the school. My son's school allowed a late payment due to this (I would withdraw the funds on Jan 1/2, call the bursar and say the 529 payment is on the way and may not make the Jan 5 deadline, and they would say ok and it was fine). The Invest 529 does an electronic transfer.

[Anonymous]

Anonymous wrote:I do things a bit differently than the pp. When my kids enroll in college, I ask them to make me an "authorized payer." That way, I am notified when tuition & fees are billed. Then I have the 529 plan issue a check directly to the educational institution. Also note that the withdrawals from the 529 need to be in the same year as the expenses. For example, I wait until January 1 to pay spring tuition.

This.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:you can do it either way - have 529 pay directly to school or you pay out of pocket and have it pay to you.

it's tax free.

The one time I had my 529 pay the school directly, the 1099-Q came in my son's name, which was a pain in the neck during tax time. Since then, I have paid out of pocket and then had the 529 pay it to me.

Why? You don't report the 1099-Q on taxes unless you're taking out more than allowed (or for non-allowable expenses). I always have the 529 pay directly. Easiest way to prove the $ is going where it's supposed to.

Not that PP but I think maybe it’s more likely to trigger a letter from the IRS that way. Or at least we got one (which meant we sent back a letter with a list of expenses and that was enough).

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:you can do it either way - have 529 pay directly to school or you pay out of pocket and have it pay to you.

it's tax free.

The one time I had my 529 pay the school directly, the 1099-Q came in my son's name, which was a pain in the neck during tax time. Since then, I have paid out of pocket and then had the 529 pay it to me.

Why? You don't report the 1099-Q on taxes unless you're taking out more than allowed (or for non-allowable expenses). I always have the 529 pay directly. Easiest way to prove the $ is going where it's supposed to.

Not that PP but I think maybe it’s more likely to trigger a letter from the IRS that way. Or at least we got one (which meant we sent back a letter with a list of expenses and that was enough).

DP. Haven’t had that happen yet, and they’ve always been in kids’ names. I didn’t know this was a thing because our accountant didn’t mention it.

[Anonymous]

Anonymous wrote:I do things a bit differently than the pp. When my kids enroll in college, I ask them to make me an "authorized payer." That way, I am notified when tuition & fees are billed. Then I have the 529 plan issue a check directly to the educational institution. Also note that the withdrawals from the 529 need to be in the same year as the expenses. For example, I wait until January 1 to pay spring tuition.

This is how we handle it. I am only reimbursed directly for expenses I can't pay to the school, e.g. DS's off-campus rent.
There are no taxes on the disbursements