I just discovered I can take 529 withdrawals to offset scholarship money. Can I still do qualified withdrawals for previous college years?

You're actually in luck! Yes, you can take penalty-free withdrawals from a 529 plan that match scholarship amounts your child received. This is one of the exceptions to the 10% penalty rule, though as you noted, you'll still pay income tax on any earnings portion of the withdrawal. As for timing, the IRS doesn't specifically state a time limit for taking these scholarship-related withdrawals. Unlike regular qualified expenses which should generally match the same tax year, scholarship-related withdrawals have more flexibility. Many tax professionals advise that you can take these withdrawals even after the academic year has passed. I would recommend documenting everything carefully - keep records of all scholarship amounts received for each year and the corresponding 529 withdrawals you make. This will be crucial if you're ever audited.

I was in a very similar situation last year and discovered taxr.ai when I was desperately trying to figure out the rules around 529 withdrawals and scholarships. My son got substantial merit scholarships and I had no idea I could take out an amount equal to his scholarships without the 10% penalty! I uploaded all my documentation to https://taxr.ai and they analyzed everything - confirmed I could take withdrawals matching his scholarship amounts from previous years and even helped me calculate exactly how much I could withdraw penalty-free. Their system guided me through documenting everything properly for potential IRS questions. Honestly saved me hours of research and worry about doing it wrong.

Just wanted to follow up about my experience with taxr.ai after asking about it earlier. I went ahead and tried it with all my kids' scholarship documentation and 529 statements, and wow - total game changer! They analyzed 4 years of records for both my twins in about a day and gave me a detailed breakdown of exactly how much I could withdraw penalty-free for each year. They even flagged some qualified expenses I had overlooked (like required course materials and a laptop) that further reduced my taxable amount. The documentation they provided made everything crystal clear for my tax preparer. Definitely worth it for the peace of mind alone, especially with such a significant amount of money involved over multiple years and multiple kids!

If you're trying to contact the IRS about this 529/scholarship situation, good luck... I spent WEEKS trying to get through to someone who could give me a straight answer about retroactive 529 withdrawals. Always busy signals or 2+ hour hold times only to get disconnected. Finally used https://claimyr.com and it was life-changing. They got me connected to an IRS agent within 20 minutes who specialized in educational savings plans. You can see how it works in this demo: https://youtu.be/_kiP6q8DX5c. The agent confirmed I could make withdrawals equivalent to scholarship amounts from previous years and explained exactly what documentation I needed to keep.

I need to eat some crow here. After expressing skepticism about Claimyr, I decided to try it as a last resort after spending another frustrating morning getting disconnected from the IRS three times. I was honestly shocked when I got a call back in about 30 minutes connecting me to an actual IRS agent. The agent confirmed everything about the 529 scholarship exception and walked me through the exact process for making retroactive withdrawals from previous years. She even emailed me the specific documentation templates I should keep with my records. What would have taken me potentially weeks more of frustration was solved in one 15-minute conversation. Never been happier to be wrong about something!

Something important to consider: when you withdraw from the 529 for scholarship amounts, remember that only the EARNINGS portion will be taxable (not your original contributions). So depending on how long the money has been invested and how it performed, only a percentage of your withdrawal will actually be subject to income tax. For example, if you contributed $50K over the years and it grew to $60K, only $10K is earnings. If you withdraw $20K, only 1/6 of that withdrawal ($3,333) would be taxable income.

Make sure you keep ALL scholarship documentation for at least 7 years! My friend got audited 3 years after making 529 withdrawals to match her son's scholarships. The IRS wanted proof of every scholarship amount and when it was received.

This is such valuable information! I wish more parents knew about this scholarship exception. Just to add one more important detail - make sure you understand the difference between "tax-free" scholarships and "taxable" scholarships when calculating your penalty-free withdrawal amount. If your daughter received scholarships that exceeded her qualified education expenses, that excess amount would be considered taxable income to her. You can only take penalty-free 529 withdrawals up to the amount of tax-free scholarships she received. So if she got $30K in scholarships but only $25K was tax-free (because $5K exceeded her qualified expenses), you could only withdraw $25K penalty-free from the 529. This is a nuance that trips up a lot of families, so definitely worth double-checking with the school's financial aid office or a tax professional if you're unsure about the tax treatment of any specific scholarships.

Great question about the scholarship tax treatment! You're absolutely right that this can get complicated with multiple scholarships from different sources. Most schools will provide a Form 1098-T that shows the total scholarships/grants received and qualified tuition/fees paid, but they typically don't break down which specific scholarships were applied to qualified expenses versus excess amounts that became taxable income to your daughter. Here's what I'd recommend: Start by gathering all scholarship award letters and your daughter's 1098-T forms for each year. Then compare the total scholarship amounts to her qualified education expenses (tuition, fees, required books/supplies). Any scholarship money that exceeded those qualified expenses would have been taxable income to her (and should have been reported on her tax returns). You're spot-on that professional help can be valuable here - a tax professional can help you reconstruct this analysis for each year and ensure you're calculating the correct penalty-free withdrawal amount. The stakes are high enough with potential penalties and interest that getting expert guidance is often worth the cost, especially when dealing with multiple years and substantial amounts. The key is being conservative and well-documented. When in doubt, it's better to withdraw slightly less than risk penalties on an overly aggressive interpretation.