If you received a refund in 2021 from your child’s higher education institution due to your beneficiary dropping a class, skipping a semester, or a COVID-related cause, you can re-contribute that refund back to your Ohio 529 account. Please keep in mind simply withdrawing too much money from your 529 plan is not an acceptable re-contribution.
Here are your two options with which you can use your refund:
- Apply the funds to a qualified higher educational expense during the same calendar year; and
- Place the funds back into your Ohio 529 account within 60 days of the check refund date. The refund from the school CANNOT be sent directly to Ohio 529 Plan.
For either option, you will need to keep detailed receipts/documentation.
If you choose to recontribute those funds to your account, you will continue to benefit from the 529 tax advantages as well as to avoid any potential tax ramifications as the returned funds could now be considered part of your income if not re-deposited. Something to keep in mind: The IRS may consider the original 529 transaction as a non-qualified withdrawal because the funds are no longer being used to cover qualified higher education expenses.
The Protecting Americans from Tax Hikes (PATH) Act allows you to recontribute those funds to your Ohio Direct 529 account. There are some guidelines including: 1) The refunded amount must re-deposited within 60 days of the issuance of the refund; and 2) it must be deposited into a qualified 529 account. 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 re-contribution into the 529 plan. Additionally, you will need to maintain all documentation linking the re-contribution 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.
As you deposit the refund, you must notify Ohio’s 529 Plan that it is a re-contribution of previously withdrawn funds and the refunded amount is compliant with the 60-day deadline. The notification to Ohio’s 529 Plan must include a letter of instruction signed by you detailing the account number of the 529 account from which the withdrawal was initiated along with the date and amount of the withdrawal. If these steps are not followed, the amount will be treated as a normal contribution and thus the original withdrawal may be considered a non-qualified withdrawal by the IRS. You should consult your tax advisor regarding the tax implications of any refunds and/or re-contributions.
Here are the steps to follow:
Direct 529 Plan Re-contribution
Re-contributions must be done by check. Please include the account number on the check. There is no form needed to make the re-contribution. However, you must include a signed letter stating that this is a re-contribution due to a school refund, the account number from which the original 529 withdrawal was made as well as the initial date of the withdrawal, and the date that you received the refund from the school. You need to keep a copy of your letter. Again all re-contributions must be made within 60 days of refund check date.
These steps will provide you a paper trail in case of an IRS audit, as you will still receive a 1099Q for the original withdrawal. You will need to document the refund from the school, the reason for the refund, and the re-contribution to the 529 plan made within 60 days of the refund check date.
You will then mail the signed notification letter and the check to:
CollegeAdvantage Direct 529 Savings Plan
PO Box 219305
Kansas City, MO 64121-9305
Depending on the amount of the refund you receive, there are different guidelines for the check:
- If under $10,000, the payee can endorse the schools refunded check and make it payable to OTTA, and keep a copy of the check for your records.
- If great than $10,000, you will need to cash the refund check, and then send OTTA a personal check for the re-contribution.
Guaranteed 529 Plan Re-contribution
The refund from the school CANNOT be re-contributed into the CollegeAdvantage Guaranteed 529 account, because this plan has been closed to contributions since the end of 2003.Therefore, the refund must be deposited into a CollegeAdvantage Direct 529 Plan or BlackRock CollegeAdvantage Advisor 529 Plan.
You must mail in a check as the re-contribution. Make sure to include the original Guaranteed account number as well as any already established Direct or Advisor account number.
As with making a CollegeAdvantage Direct 529 Plan re-contribution, you must include a signed letter stating that this is a re-contribution due to a school refund, the account number from which the original Guaranteed 529 withdrawal was made as well as the initial date of the withdrawal, and the date that you received the refund from the school. You will also need to include the account number for the Direct Plan or Advisor in which you wanted to make the re-contributions. You need to keep a copy of your letter. Again all re-contributions must be made within 60 days of receiving the refund.
These steps will provide you a paper trail in case of an IRS audit, as you will still receive a 1099Q for the original withdrawal. You will need to document the refund from the school, the reason for the refund, and the re-contribution to the 529 plan made within 60 days of the refund check date.
If you are making the re-contribution to a CollegeAdvantage Direct Plan, mail the signed notification letter and the check to:
CollegeAdvantage Direct 529 Savings Plan
PO Box 219305
Kansas City, MO 64121-9305
If you are making the re-contribution to a BlackRock CollegeAdvantage Advisor 529 Plan, please contact your financial advisor to find out where to mail the signed notification letter and the check.
Depending on the amount of the refund you receive, there are different guidelines for the check:
- If under $10,000, you can endorse the schools refunded check and make it payable to OTTA.
- If great than $10,000, you will need to cash the refund check, and then send OTTA a personal check for the re-contribution.
If you do not have a CollegeAdvantage Direct 529 Plan, you can use your re-contribution from the Guaranteed 529 account to establish an Ohio Direct 529 account.
Again, remember that the re-contribution must be deposited back into the 529 plan account within 60 days of the refund being issued. Otherwise, the IRS may consider the refund to be part of your income and there may tax consequences. The IRS could also treat the original withdrawal as a non-qualified withdrawal and there could be tax consequences on the first transaction as well. Consult with your tax advisor regarding the tax implications of any refunds and/or re-contributions.
When the refund is added back to your CollegeAdvantage Direct 529 account, it will be coded as a regular contribution as the money will be added as 100% principal.
As the refund is really a re-contribution of your original 529 withdrawal, it cannot be counted towards your state of Ohio tax deduction. With this refund, you are returning dollars that has already been counted towards prior state income deductions. When you start working on your taxes, you will need to subtract the amount of the refund from your contribution total for this year. As a reminder, you should keep your copies of bank statements and/or cashed checks for verification of your contributions to Ohio’s 529 Plan. This is also includes the refund check.
Even though the refund check is a re-contribution of your original 529 withdrawal, you will still receive a 1099Q for the original withdrawal. The 1099Q will NOT be adjusted because of the re-contribution. This is why you must keep detailed records, including a copy of the refund check, a copy of the letter for the reason for the refund, and a copy of re-contribution check, which was deposited within 60 days of its receipt. If you decided to utilize the refund (rather than re-contribute it) for upcoming qualified higher educational expenses during the calendar year, then you will need to keep those detailed receipts as well.
If you need additional guidance, our Customer Service and Operation Team will be able to help you. The department is open from 8:30 a.m. – 6 p.m. ET Monday – Friday. You can reach them by calling 1-800-AFFORD-IT (233-6734).
Explore Ohio’s 529 Plan —The Plan That Can — at CollegeAdvantage.com.
This article was originally posted in April 2020 and has been updated to reflect new information for 2021.
