topic 529 payments to pay off loans in Get your taxes done using TurboTax

529 payments to pay off loans

confusedrf — Mon, 09 Mar 2026 09:14:12 GMT

Looking to the spring. My daughter will have graduated. She or we will start paying off student loans. I have $$ left in her 529 plan.

If she decides to go for masters this may be moot but if she says no more school...I have 529 funds to withdraw and put toward her loans.

I found out thoug the only the first 10k is a tax free dispersement. Over that is taxable since for some reason loans are not a qualifed expense.

Let's say I take the dispersement and pay off the loan this year. Where does turbo tax capture all this when I file next year.

I'd almost like to do a new test return from scratch making believe such was the case THIS year and see what my tax burdon is.

Re: 529 payments to pay off loans

JulieS — Thu, 03 Mar 2022 16:45:23 GMT

Yes, you are correct, only $10,000 can be withdrawn tax free to pay off student loans.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.

Re: 529 payments to pay off loans

confusedrf — Thu, 03 Mar 2022 20:54:15 GMT

She may go to grad school...six of one half dozen of the other I guess....pay grad school or pay loan...

Re: 529 payments to pay off loans

AmyC — Thu, 03 Mar 2022 22:35:59 GMT

The graduate school tuition does not have a cap like the loan. So, the amount left in the account may dictate the spending in part. Only $10,000 can go towards student loans.