529 Plan and Loans

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Diffferent poster: but if i were to change the 529 to me, enroll in a class, company pays for class, i presume i can withdraw equivalent amount of class tuition from 529 tax and penalty free.

No, not if the employer is paying the tuition. Are you stupid?

Seriously.

The rule is no double dipping. If your employer pays, that means you didn't pay. So you do not have any qualifying expenses.

To use the funds in 529s you have to have expenses.

Actually you can withdraw without penalty then - if a kid receives scholarship or ROTC, parent can withdraw amount of scholarship or ROTC award from 529 plan without penalty. I presume that was what the poster was referring to. So in that case, money withdrawn can be used to pay for child’s loan.

If your employer pays, it is not a scholarship. You pay the penalty.

You are right for scholarships that you pay no penalty. You still pay tax on growth though. Just no penalty. And yeah, sure. You can pay for a loan, a new roof, fancy clothes. You still pay tax on growth. Just not the 10%. Not sure why the funds in this case weren't used for expenses, in which case there wouldn't be loans.

Are you sure?
From Pub 970 Chapter 87, "The 10% additional tax doesn't apply to the following distributions...Employer-provided educational assistance (see chapter

Yes. You cannot claim a tax benefit for expenses you didn't have.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Can you explain how having your employer pay isn't like winning a scholarship from them?

I agree you will have to pay tax and penalty ON GROWTH but why on principle since there is NO WAY to tell if your employer is going to pay for a course years in advance?

If your employer pays, it is compensation. Section127 of the internal revenue code allows for employers to pay some portion with preferred tax treatment, meaning they are compensating you and it is tax free. It already has a benefit. Scholarships are not compensation. They are described in section 117. Just because you pay someone's tuition doesn't make it a scholarship. It might be a gift (if you pay your next door neighbor's bill), compensation, if it is your employer, or a scholarship, if certain criteria are met to avoid self-dealing.

As for the principal in the. 529: you can spend that on whatever you want, but an you withdrawal will be split proportionately between growth and principal (not like Rothschild) and you will be taxed on the growth and pay a penalty if the money is used for a nonqualified expense.

Stop being dense. Just ask your advisor and use common sense. Virginia has great information.

All they are asking is if there is a penalty and if they could withdraw compensated amount from 529. Previous poster’s link seem to indicate that they can.

https://www.irs.gov/pub/irs-pdf/p970.pdf See page 58.

You can withdraw anything you want. If you have qualified expenses for that amount, you pay no tax on the growth and no penalty. Qualified expense means you paid for it. Not your boss, not your tuition scholarship. You.

If your qualified expenses are zero or less than the withdrawal, you pay tax on the growth plus a ten pct penalty on all withdrawals in excess of expenses.

If you got a scholarship (as defined by law) you are allowed to withdraw that amount from the 529 without penalty. You still pay tax on the growth, but you don't pay the 10%.

That is it.

[Anonymous]

What do people do with 529 if all kids get scholarship? Just pay a 10% tax and withdraw? I never thought about it until now, but this tread made me thinking. We don't have a lot of money there, but still. My one child just got a full ride to the school of the child's dream. So, the entire balance will go to the younger one in 4 years. What is going to happen is the younger child going to get a full ride too?

[Anonymous]

Anonymous wrote:What do people do with 529 if all kids get scholarship? Just pay a 10% tax and withdraw? I never thought about it until now, but this tread made me thinking. We don't have a lot of money there, but still. My one child just got a full ride to the school of the child's dream. So, the entire balance will go to the younger one in 4 years. What is going to happen is the younger child going to get a full ride too?

No penalty. Paying the tax means it gets treated like any non-retirement account.