Yes, you are correct, only $10,000 can be withdrawn tax free to pay off student loans. The best way to estimate the tax burden is to do a mock return for next year to estimate the tax due.
You will receive a 1099-Q for the year that you withdraw the money. It will list the total distribution and the amount that is earnings.
Only the earnings are taxable and subject to the 10% penalty.
You do have other options for the balance of the 529 plan:
- The beneficiary can be changed to another family member.
- The account can be used for graduate school.
- The account can be rolled over into an ABLE account or another 529 plan.
- The account can be used for an apprenticeship or private K-12.
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