529 and Work Tuition Reimb without Double Dipping

[Ra Mu]

My work offers an 80% tuition reimbursement for certain qualified education expenses, up to $40,000. My school is charging about 25k per year. I know that approximately the first $5,250 is tax free, but what if I choose to filter the rest through a 529 plan? Can I get another 10k to be tax free this way? And to take it a step further, can I apply 529 savings to student loans in future years, or only in years that I incurred the expenses?

[Carl]

what if I choose to filter the rest through a 529 plan?

Then you pay taxes on the employer contributions/reimbursements that exceed $5,250.

"can I apply 529 savings to student loans in future years,"

Nope. But a few things to keep in mind here.

529 funds can be used for the qualified education expenses of tuition, books and lab fees. Those funds can also be used for room and board ***IF*** the room and board is in *direct support* of the education. So if you own your home or are renting in the same locale where you work, then the housing costs is not in direct support of the education. In other words, you have no clear intent to no longer live there once the education ends.

Do keep in mind too, that the administrator of the 529 account can change the beneficiary of that account too. So for example if you leave the 529 funds alone and later have kids that will be attending college, you (if you're the administrator of the account) can change the beneficiary accordingly at any time.

Now for the employer reimbursement, the taxability of the amount over $5,250 will be offset by the *qualified* education expenses they are used for. Generally it doesn't matter if the employer pays the money to you and then you pay it to the school, or if the employer pays it to the school directly, on your behalf. Either way, the amount over $5,250  gets included in box 1 of your W-2.

Also be aware that the "tuition and fees" deduction expired at the end of 2017. So while out of pocket expenses are no longer deductible, it will qualify you for a number of education credits such as the American Opportunity Credit or Lifetime Learning Credit.

[Ra Mu]

Ok. So the amount I receive over $5,250 goes in box 1 of my W2, got it. My confusion is that I’m not sure why I wouldn’t be able to place that additional amount in a 529 for the tax free benefit, then use 10,000 from that same 529 plan in the same year for that additional tax savings.

[Ra Mu]

I have also found that it could be 100% deductible for my employer and tax free for me, even for amounts over $5,250, if they arrange it to be a Working Condition Fringe Benefit.