529 and HSA Distributions

[LCP]

For 1.), I'm not sure but think I remember you need to have qualified educational expenses in the same tax year as the distributions in order to exclude the distributions from income. You'd better look it up before you hit your client with an unpleasant tax surprise plus penalty.

Thanks for the reply.

I'd be surprised about needing to distribute 529 money in the same year the cost was incurred or even paid ................... that would be difficult to manage.

[Lion]

An answer

For 2.) Yes, if what I just read for my husband's new 2010 plan was understood by me. One of the advantages they were touting was that you could see what your medical expenses are, contribute that amount, then immediately reimburse yourself that amount. However, they pushed the virtue of funding to the max, early rather than later, to save for retirement tax deferred if more than needed for medical.

For 1.), I'm not sure but think I remember you need to have qualified educational expenses in the same tax year as the distributions in order to exclude the distributions from income. You'd better look it up before you hit your client with an unpleasant tax surprise plus penalty.

[LCP]

Two somewhat related questions on timing ..........

1. With a 529 plan, can you leave the money there as long as you want and then distribute multiple years' worth of expenses all at once?


2. With an HSA (assuming you are covered and eligable for a full year) can you wait to fund it until the end of the year and then immediately make a distribution for all of that years' medical expenses?