K M W
Employee Tax Expert

Retirement tax questions

Funds can be withdrawn from a 529 plan tax free, provided the funds are used for qualified education expenses at a qualified educational institution.  Distributions can be used for graduate school as well as undergraduate expenses.

 

You mentioned that Son 1 used a student loan to pay for the spring semester.  Keep in mind that student loans can be used for a range of costs related to higher education - more than just tuition, room and board.  So to maximize the amount of tax-free distributions allowed from the 529 plan, you will want to allocate as much of the student loan funds to expenses that are eligible expenses for student loan proceeds but not eligible expenses for 529 tax-free distributions.

 

I recommend consulting the student loan paperwork to determine what those funds can be used on or seek assistance from the college financial aid office to make sure you are in compliance with any loan requirements - and then back into how much expenses remain that are eligible for the use of the 529 plan funds to calculate the correct amount to withdraw from the 529 plan for all the 2024 qualified expenses.

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