Can I get reimburse from 529 for subsidize loan that used to pay toward education expenses in the same year?

[gxhadong]

Please help, 

$62,150         Estimated qualified expenses on 1098T 

$28,520         School Grants

$10,442        Subsidized loan borrow in 2024

$23,188         Pay from 529 account

1) Am I allowed to reimburse from 529 for the loan amount of $10,442 since it was used to pay for tuition

expenses? To clarify, I do have enough money in 529 to pay for all expenses without the loan, but I wanted to take advantage of no-interest loan, so I borrowed it anyway and don't plan to pay it off until graduation)

2). If allowed, does it count toward the lifetime limit of $10.000 in student loans pay off.

Thank you so much in advance,

[Bsch4477]

SECURE Act, established a lifetime limit of $10,000 from a 529 plan that can be used without any penalties or tax consequences to repay the beneficiary's student loans, including federal and most private loans.

[Hal_Al]

Q.   Am I allowed to reimburse from 529 for the loan amount of $10,442 since it was used to pay for tuition expenses?

A.  Yes.  Essentially, you have discovered a tax loop hole. Since you actually had $10,442  of qualified expenses, you may  take a qualified distribution from the 529 plan for that amount.  The fact that you also borrowed money, in that amount, is not relevant (scholarships received are handled differently from loan money received). 

Q,  If allowed, does it count toward the lifetime limit of $10,000 in student loans pay off.

A. No, because you didn't  make an actual loan payment

When you pay off the loan,  even after graduation, you will be allowed to take another  tax fee distribution from the 529 plan, up to $10,000.  That's the loop hole. 

[Hal_Al]

You didn't ask about claiming a tuition credit.  If you are eligible for the tuition credit, you want to allocate enough tuition (usually $4000)  to the credit to claim it.  That is, instead of taking an additional $10, 442 529 plan distribution, you take only $6442. 

Room and board are qualified expenses for a 529 distribution, but not for the tuition credit.  Room and board are not usually included in the 1098-T amount (box 1).