Paying for College

What to Do With COVID-19 Food and Housing Refunds

If you used funds from a 529 account to pay for these expenses, the deadline to deposit these funds back into a 529 account without paying income taxes on the funds has been extended.
Student in dorm room

One of the most dramatic ways that the COVID-19 pandemic has affected colleges has been in the closure of campuses and the departure of students from campus. This exodus has resulted in refunds for pre-paid food and housing expenses to students and their families. If families used 529 funds, such as those from the Massachusetts U.Fund, to pay for those costs, many have wondered if they can deposit that money back into their 529 account.

When a family uses 529 funds to pay for food and housing expenses, they are able to withdraw those funds and their earnings free from taxes. With schools providing refunds for food and housing costs, are families now expected to pay taxes on those earnings? Can they redeposit those funds into their 529 accounts?

The IRS has helpfully issued guidance on this matter. Typically, students and families have a 60-day window to redeposit any refunds from a 529 account into that 529 account to avoid paying income taxes on their account earnings. In response to the extenuating circumstances of COVID-19, the IRS has extended this window to a fixed date of July 15, 2020. For most families, this provides an extension of that 60-day window to redeposit funds into their 529 account, and provides families some time to get their finances sorted.

This extension is a federal guideline, and only applies to federal taxes. As always, you should check with your tax preparer for tax advice, particularly regarding the tax laws of your state of residence. If you have questions about redepositing 529 funds, or anything else related to your 529 account, contact your 529 plan program manager. If you are a U.Fund investor, you can contact Fidelity Investments, the U.Fund program manager, at (800) 544-2776.