On Saturday, October 7th, I awoke to find a text from my daughter telling me to not worry and that she was safe. Of course her text had the opposite effect! In her senior year, she was attending a study abroad program in Jerusalem.
The university ended the program early and sent the students home. My daughter was pretty sure the university wouldn’t refund any of the program fees but we were pleasantly surprised when they posted a refund to her university account at the beginning of December.
Refunds and Withdrawing Too Much from a 529
But this created a new–if relatively minor–problem. We used her 529 to pay the program fees. The refund set us up for having withdrawn too much from her account. Now we’d owe both regular income tax and a 10% penalty on the earnings portion of the excess withdrawal. The state of Virginia would also want to reclaim the tax deduction from the contribution portion of the excess withdrawal. It’s not a lot of tax, but I’d like to avoid paying it.
So, what to do?
Redeposit Request
Thankfully, it’s not hard to correct the problem with a process called a “redeposit request”. In my case, the process of submitting the request is as follows:I can find the form here, on Virginia529’s website. The process is simple:
- Download the form from Virginia529’s library of forms.
- Fill in the details on the form, then upload the file to Virginia 529’s Box account, here
- Follow up with an online deposit that matches the amounts on the redeposit form
The following criteria must be met to avoid the tax consequences:
- The refund must be from an eligible education institution (K-12 schools don’t count)
- The refund must be redeposited with 60 days of the refund
- The refund must be redeposited into a 529 account for the same student as the original withdrawal
- The refund must be for Qualified Higher Education Expenses only
- The redeposit cannot exceed the amount of the original withdrawal
Conclusion
I’m so grateful that our daughter has been safely returned to us. Not all parents and families will be as fortunate as we are. My heart goes out to the families who have loved ones who have been injured, taken hostage, or died in the recent violence in Israel and Gaza.
My redeposit request is so minor that I’m not even going to call it a speed bump on my 529 journey. Unlike other problems, it’s one that can be easily corrected and I can move on, almost forgetting that it even happened.