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529 and company tuition reimbursement
If I go to school, my company will pay me an extra $5k as tuition assistance. Can I still take a $5k distribution from my 529, or will I only be able to take distributions after the $5k mark?
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You can withdraw money from your 529 at any time, for any reason, in any amount. The employer tuition reimbursement has nothing to do with this, and is completely separate and irrelevant. Any and all 529 funds not used for qualified education expenses is the same tax year they are withdrawn, will be taxable income to the beneficiary recipient of those funds.
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Most think that if it's under that amount and not on their W-2, then the IRS won't know about it and believe they can get away with "double dipping" by claiming qualified expenses paid with other monies. Not so fast, While it may not be on our W-2, the employer does still report it to the IRS on their own business tax return. So that means that while things may seem to work out at first, when the IRS does their reconciliations upon the completion of the tax filing season, they'll catch it anywhere from 24- to 36 months down the road after you've filed. Then along with the back taxes you'll pay to the IRS, add to that the interest that's been accumulating, along with any fines and penalties that may be assessed. So it's not worth it. What you may "save" up front, you will lose much more of down the road.
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You can't pay for tuition with tax-free money and also take a tax-free withdrawal.
If the total tuition is less than or equal to the tax-free reimbursement, then you can't take a tax-free 529 withdrawal. Any withdrawal would be considered non-qualified.
If the tuition reimbursement is taxable, or the total tuition is more than tax-free reimbursement, then you can take a 529 withdrawal to cover the difference and it will be tax-free.
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Any education assistance monies that you receive in a tax year from any source (employer, 529 plan, scholarship, etc.), that is not spent on *qualified* education expenses in that same tax year, is taxable income to you. It doesn't matter where that money comes from.
Now some clarification of "qualified" expenses is called for here, only because there are 529 funds involved.
The only *QUALIFIED* education expenses are tuition, books and lab feels. That's it. There are no exceptions. But with 529 funds, in addition to the three qualified expenses they can also be used for the unqualified expense of room and board *PROVIDED* that room and board is paid *in direct support* of the education.
Now in your case I doubt you would qualify to claim the room and board expense against the 529 funds, as I am of the impression that where you lived in 2018 would not have changed had you not been in school. Generally, the only students that qualify for the room and board expense against 529 funds, are undergraduate students that qualify as a dependent on their parent's tax return. Since you worked in 2018 (full time I presume?) I am making the assumption that there is no way possible your parents would or could qualify to claim you as a dependent. Now I can get "into" that if you like. But that's kinda deviating to far from your root question.
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If my employer want's to "give" me $5,150 dollars to pay for qualified education expenses and I don't need that money to pay for those expenses with, thus making it taxable, then my only question is, "who to I make the tax payment check too?" I didn't have to "earn" that money per-se. It's free money. So I don't have a problem with paying taxes on it. (My issues with how my tax money is spent is a totally separate issue. But when it comes to paying "my fair share", I have no issues with that.)
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My son seems to think that by providing a receipt of 529 payments (I made) to the University, that he can take that and file it as "paid education" and get "reimbursed" from his employer. Clearly, I'm using quotes to emphasize that he himself didn't pay for education and so wouldn't qualify to get reimbursed, but I wanted to make sure I'm not missing something here? To me this sounds unethical.