529 Plan and Loans

[Anonymous]

Can you use funds from a 529 plan to pay off a loan for a child.

[Anonymous]

No. The IRS publication can be found here https://www.irs.gov/pub/irs-pdf/p970.pdf. It tells you what are qualified educational expenses.

There was H.R. 529 that proposed allowing using 529s to pay off student loans. I don’t know what became of it.

[Anonymous]

Loans are not a qualified expense. You certainly can use the proceeds, but you will pay tax on the earnings and a 10 pct penalty.

[Anonymous]

Thank you.

[Anonymous]

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.

[Anonymous]

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?

[Anonymous]

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.

[Anonymous]

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 So in that case, money withdrawn can be used to pay for child’s loan.

[Anonymous]

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.

[Anonymous]

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?

[Anonymous]

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

[Anonymous]

Why would you take a loan vs. paying directly if you have 529 money?

[Anonymous]

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?

From this link: https://www.edvisors.com/education-tax-benefits/college-savings/529-college-savings-plans/

Tax Treatment of 529 Plan Distributions

Distributions from 529 college savings plans include both earnings and a return of contributions. Each is deemed to be included proportionately within any distribution. For example, if one third of the balance of a 529 plan is from earnings and two thirds from contributions, then one third of any distribution will be assumed to have come from earnings.

The tax treatment of a non-qualified distribution differs according to whether one is considering the part of the distribution that comes from earnings or the part that came from contributions.

The earnings portion of a non-qualified distribution is subject to income tax at the beneficiary's rate plus a 10 percent tax penalty. Exceptions are made for the 10 percent tax penalty (but not the ordinary income taxes) for distributions made in connection with the beneficiary's death or disability, because of the receipt of a scholarship, veterans education benefits or employer tuition assistance by the beneficiary, because of the attendance of the beneficiary at a U.S. military academy or because of coordination restrictions with the American Opportunity Tax Credit or Lifetime Learning Tax Credit.
The portion of a distribution that comes from contributions is not taxed.


Who is stupid now????

[Anonymous]

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.

[Anonymous]

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.