topic Can I get reimburse from 529 for subsidize loan that used to pay toward education expenses in the same year? in Education

Can I get reimburse from 529 for subsidize loan that used to pay toward education expenses in the same year?

gxhadong — Sun, 08 Dec 2024 02:11:04 GMT

Please help,

$62,150 Estimated qualified expenses on 1098T

$28,520 School Grants

$10,442 Subsidized loan borrow in 2024

$23,188 Pay from 529 account

1) Am I allowed to reimburse from 529 for the loan amount of $10,442 since it was used to pay for tuition

expenses? To clarify, I do have enough money in 529 to pay for all expenses without the loan, but I wanted to take advantage of no-interest loan, so I borrowed it anyway and don't plan to pay it off until graduation)

2). If allowed, does it count toward the lifetime limit of $10.000 in student loans pay off.

Thank you so much in advance,

Re: Can I get reimburse from 529 for subsidize loan that used to pay toward education expenses in the same year?

Bsch4477 — Sun, 08 Dec 2024 02:52:39 GMT

SECURE Act, established a lifetime limit of $10,000 from a 529 plan that can be used without any penalties or tax consequences to repay the beneficiary's student loans, including federal and most private loans.

Re: Can I get reimburse from 529 for subsidize loan that used to pay toward education expenses in the same year?

Hal_Al — Mon, 31 Mar 2025 19:05:16 GMT

Q. Am I allowed to reimburse from 529 for the loan amount of $10,442 since it was used to pay for tuition expenses?

A. Yes. Essentially, you have discovered a tax loop hole. Since you actually had $10,442 of qualified expenses, you may take a qualified distribution from the 529 plan for that amount. The fact that you also borrowed money, in that amount, is not relevant (scholarships received are handled differently from loan money received).

Q, If allowed, does it count toward the lifetime limit of $10,000 in student loans pay off.

A. No, because you didn't make an actual loan payment

When you pay off the loan, even after graduation, you will be allowed to take another tax free distribution from the 529 plan, up to $10,000. That's the loop hole.

Re: Can I get reimburse from 529 for subsidize loan that used to pay toward education expenses in the same year?

Hal_Al — Sun, 08 Dec 2024 14:11:36 GMT

You didn't ask about claiming a tuition credit. If you are eligible for the tuition credit, you want to allocate enough tuition (usually $4000) to the credit to claim it. That is, instead of taking an additional $10, 442 529 plan distribution, you take only $6442.

Room and board are qualified expenses for a 529 distribution, but not for the tuition credit. Room and board are not usually included in the 1098-T amount (box 1).

Re: Can I get reimburse from 529 for subsidize loan that used to pay toward education expenses in the same year?

gxhadong — Wed, 09 Apr 2025 03:42:40 GMT

Thank you for reminding about the $4000 tuition credit. That is exactly I plan to do.