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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=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?[/quote]

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.[/quote]

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.[/quote]

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.  [/quote]

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