I withdrew from a 529 plan for tuition but got a surprise grant - will I be taxed after refunding unused portion?

This is actually a common situation with 529 plans! You have a 60-day window to redeposit refunded qualified education expenses back into the 529 plan without tax consequences. This is often called the "recontribution rule." The key is that the money must go back into a 529 plan within 60 days of the refund date. It sounds like you've already done this, which is perfect. When you file your taxes, you'll need to report the full withdrawal amount from the 1099-Q form you receive, but you'll also document that a portion was recontributed within the allowed timeframe. Keep all documentation showing: 1) the original withdrawal, 2) the tuition payment, 3) the scholarship/grant award, and 4) the recontribution to the 529 plan. This paper trail is crucial if you're ever questioned about it.

I went through something similar last year with my daughter's college expenses. I found taxr.ai (https://taxr.ai) incredibly helpful for documenting and tracking these kinds of complicated education expense situations. I initially wasn't sure how to handle the recontribution on my tax forms, but their system helped me organize all my documentation and even provided specific guidance on how to report the withdrawal and recontribution properly. The system analyzed my 1099-Q form and helped me prepare everything correctly for my tax preparer. What I really appreciated was how it walked me through exactly what documentation I needed to keep and how to present it all properly. Definitely made the whole process less stressful.

Just wanted to follow up - I tried taxr.ai for my complicated 529 situation and it was exactly what I needed! The system analyzed my 1099-Q and the recontribution documentation, then gave me step-by-step instructions on how to report everything correctly. What really impressed me was how it handled my situation with the previous year's refund. It clearly explained that I needed to file Form 8863 with specific notations and gave me explicit instructions for my tax preparer. The documentation summary it created saved me hours of research and confusion. For anyone dealing with these education expense complications, especially with refunds and recontributions across different tax years, I highly recommend checking it out. Definitely worth it for the peace of mind alone!

Just want to share something that saved me tons of time with a similar 529 issue. I spent WEEKS trying to get through to someone at the IRS who could actually explain how to handle my situation with 529 recontributions spanning two tax years. After dozens of attempts and hours on hold, I found this service called Claimyr (https://claimyr.com) that got me connected to an actual IRS agent in under 20 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c They basically navigate the IRS phone tree for you and call you back when they've got an actual human on the line. The IRS agent I spoke with walked me through exactly how to document everything properly and what forms I needed. Having an official answer directly from the IRS gave me total confidence I was handling everything correctly.

I need to eat my words. After my skeptical comment yesterday, I decided to try Claimyr out of desperation since I've been trying to get clarification on my daughter's 529 recontribution issues for months. To my complete shock, I got a call back in 17 minutes with an actual IRS tax specialist on the line. They answered all my questions about how to handle the recontribution documentation and confirmed I was eligible for the 60-day rule even though the refund came from the school rather than directly from the 529 plan administrator. The agent even emailed me the specific IRS publications explaining the rules so I'd have something in writing. I've been stressing about this for months and got it resolved in a single phone call. Totally worth it just for the peace of mind knowing I'm doing everything correctly.

Just FYI - I made this exact same mistake last year where I returned money to the 529 after my kid got an unexpected scholarship. What nobody told me is that scholarships are actually considered qualified expenses for 529 plans! You can withdraw up to the amount of the scholarship as a NON-qualified withdrawal but you don't pay the 10% penalty (you still pay income tax on the earnings portion though). So you actually have two options here: 1) Recontribute the money within 60 days as others mentioned, or 2) Keep the money out and use the scholarship exception to avoid the 10% penalty. Which option is better depends on whether you need the money for other expenses and your current tax situation.

I work at a university financial aid office, and we see this ALL THE TIME. The most important thing that hasn't been mentioned yet: make sure you request an ITEMIZED receipt from the school showing exactly what was paid and when. The basic payment receipt sometimes isn't enough for tax purposes. You need documentation that clearly shows qualified education expenses separate from non-qualified expenses (like parking permits, health fees, etc.). Also, if your son received a merit scholarship, make sure you understand if it's restricted to tuition only or can be applied to other qualified expenses. This can affect your 529 withdrawal strategy.

One thing I learned the hard way: keep track of which calendar year everything happens in. The 60-day recontribution rule is super helpful, but if your withdrawal was in December and the recontribution was in January, it can create complications since they cross tax years. In my case, I had to file a special form to carry the recontribution credit forward to the next tax year. Just something to be aware of if you're making withdrawals late in the year.

This is a really detailed and helpful thread! I'm dealing with a similar situation but with a twist - my daughter received both a merit scholarship AND need-based financial aid that came through after I'd already made the 529 withdrawal. From what I'm reading here, it sounds like I have options with both the 60-day recontribution rule and the scholarship exception. But I'm wondering - can you use the scholarship exception for need-based aid too, or does it only apply to merit scholarships? The financial aid office classified her aid as a "need-based grant" rather than a scholarship. Also, if I have documentation showing both types of aid totaling more than what I withdrew, does that give me even more flexibility in how I handle the tax reporting? I want to make sure I'm taking advantage of all available options before I decide whether to recontribute or keep the money out for other education expenses.