Paying student loans with 529 plan

[Sue52]

Hi, I have a couple of quick questions regarding paying student loan with 529:

1.  Can you pay up to $10,000 in qualified student loans from the 529 at any time, or are there any time limitations or rules?

2.  If the loan was originally used to pay for expenses that were put towards the AOTC, can you then use the 529 to pay the loan, or do you have to subtract the AOTC expenses first?

[Hal_Al]

Q1.  Can you pay up to $10,000 in qualified student loans from the 529 at any time, or are there any time limitations or rules?

A1. The only timing rule is that the distribution from the 529 plan must be taken  in the same year that a payment (of the same amount, or more) was made on the loan.

Q2.  If the loan was originally used to pay for expenses that were put towards the AOTC, can you then use the 529 to pay the loan. 

A2. Yes. You do not  have to subtract the AOTC expenses claimed, first.  

[Critter-3]

Can You Use a 529 Plan to Pay Student Loans?

Student loan debt remains one of the biggest kinds of consumer debt in the country. Although people with education debt have been limited to exploring existing avenues for managing their loans, there is a little relief. Since the passing of the SECURE Act, 529 plan holders are able to withdraw up to $10,000 tax-free to put toward their own student loan debt, or that of their children, grandchildren, or spouses.13 As with any other financial product, it's a good idea to check with your plan administrator for full details on how this works.

• Withdraw up to $10,000 from their plan to pay down qualified student loans penalty-free—with conditions. The first is that the $10,000 maximum is a lifetime limit for a beneficiary and each sibling. This means a family with two children can take out a maximum of $20,000 to pay down their student loans. Secondly, plan holders cannot claim any student loan interest deductions paid with this money.