I'm the account owner and beneficiary of my 529. In 2023, I had $30,000 in Qualified Higher Education Expenses (tuition + fees). But $12,000 of those expenses were paid for via a federal loan that was disbursed directly to my school.
My question is: how much can I withdraw my 529 as a qualified withdrawal (no tax, no penalty)?
1. Can I only withdraw $18k, i.e., $30k minus the $12k loan amount?
2. Or can I withdraw the full $30k, even though $12k of my "expenses" were paid for directly by a loan?
3. Or could I even withdraw $40k – $30k in expenses plus $10k to pay off loan principle (subject to the $10k lifetime limit on loan payments from a 529)?
I hope that all makes sense. I cannot find guidance on this question anywhere. Thanks so much.
Q. How much can I withdraw my 529 as a qualified withdrawal (no tax, no penalty)?
A. Simple answer: $30,000; the full amount of the qualified expenses paid. The fact that you also borrowed money is not relevant.
Q. Could I even withdraw $40k – $30k in expenses plus $10k to pay off loan principle?
A. Yes. So long as there was no double dipping. To be a qualified loan (for a 529 distribution) you must have paid qualified educational expenses with it (at some time, not necessarily this year). You can't claim the same expenses for both the loan and the $30K 529 distribution. But, room and board are also qualified expenses, even if the student lived off campus or at home (the student must be half time or more).
Q. Let's say the loan was for $20,000, but I only pay off $5k using 529 money. As far as double-dipping is concerned, do I only need to show that $5k of the loan money was used for qualified higher education expenses that were NOT also claimed as expenses for 529 purposes?
A. Yes.
Q. Where is this information captured in TT? What section (s)?
A. In TurboTax (TT), enter at:
Federal Taxes Tab (Personal for H&B version)
Deductions & Credits
-Scroll down to:
--Education
--ESA and 529 Qualified Tuition Programs (1099-Q)
The interview will eventually present the loan payment question. There is no short cut, you have to go thru the 1099-Q interview.
Q. How much can I withdraw my 529 as a qualified withdrawal (no tax, no penalty)?
A. Simple answer: $30,000; the full amount of the qualified expenses paid. The fact that you also borrowed money is not relevant.
Q. Could I even withdraw $40k – $30k in expenses plus $10k to pay off loan principle?
A. Yes. So long as there was no double dipping. To be a qualified loan (for a 529 distribution) you must have paid qualified educational expenses with it (at some time, not necessarily this year). You can't claim the same expenses for both the loan and the $30K 529 distribution. But, room and board are also qualified expenses, even if the student lived off campus or at home (the student must be half time or more).
Thank you, and I hope you won't mind a further question:
Let's say the loan was for $20,000, but I only pay off $5k using 529 money. As far as double-dipping is concerned, do I need to show that:
1. $5k of the loan money was used for qualified higher education expenses that were NOT also claimed as expenses for 529 purposes
OR do I need to show that:
2. The entire $20k loan was used for qualified higher education expenses that were NOT also claimed as expenses for 529 purposes (even though I'm only using 529 to pay off $5k of the $20k total).
Hope that makes sense.
Q. Let's say the loan was for $20,000, but I only pay off $5k using 529 money. As far as double-dipping is concerned, do I only need to show that $5k of the loan money was used for qualified higher education expenses that were NOT also claimed as expenses for 529 purposes?
A. Yes.
Where is this information captured in TT? What section (s)?
Q. Where is this information captured in TT? What section (s)?
A. In TurboTax (TT), enter at:
Federal Taxes Tab (Personal for H&B version)
Deductions & Credits
-Scroll down to:
--Education
--ESA and 529 Qualified Tuition Programs (1099-Q)
The interview will eventually present the loan payment question. There is no short cut, you have to go thru the 1099-Q interview.