529 reimbursement for previously paid tuition

Forum|Forum|1 year ago
March 31, 2025
3 replies
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The scenario: student withdrew $20,000 of unsubsidized government loans. $14,770 was used to pay student's tuition in January 2025. Student is now married as of 3/2025 and has access to my leftover 529 money (spouse is a qualified family member of beneficiary). Can the 529 be used to reimburse the qualified educational expense of $14,770 in addition to future tuition payments within this calendar year (2025)?

Thank you!

Not A Product Question

AmyC

Employee

No. The 529 distributions made in 2025 must be used for 2025:

529 qualified Room and Board
Qualified Education Expenses - Internal Revenue Service.
repay a lifetime total of $10,000 student loan debt. See Topic no. 313, Qualified tuition programs (QTPs)

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mur3nfrAuthor

everything is occurring in 2025. The tuition was paid in January 2025 using the government loan and we are hoping to reimburse that amount with the 529 in 2025. sorry this wasn't clear!

Hal_Al

Employee

Q. Can the 529 be used to reimburse the qualified educational expense of $14,770 in addition to future tuition payments within this calendar year (2025)?

A. No, since the "student" is not the beneficiary of the 529 plan.

"Qualified family member of beneficiary" is only relevant if you are going to change the beneficiary or roll it over to a related beneficiary's plan. The distribution would have to be done after rollover. The spouse of a related person is not a qualified person for a beneficiary change/rollover. A year after the beneficiary change, and 2nd beneficiary change could be made to the spouse.

Hal_Al

Employee

Q. The scenario: student withdrew $20,000 of unsubsidized government loans. $14,770 was used to pay student's tuition in January 2025. Can the 529 be used to reimburse the student-beneficiary's qualified educational expense of $14,770?

A. It does not matter when the student received the LOAN money, in 2024 or 2025 (it might matter if it was scholarships, not loans). If he paid 2025 tuition, in 2025, he can take a 529 distribution, in 2025, for reimbursement and it still counts as a qualified distribution.

If he didn't get around to paying off 2024 tuition, until 2025, then the answer is different.

But, all of that is academic, in this situation, as apparently, the student is not the beneficiary.

mur3nfrAuthor

to clarify, this student has their own 529 account and is a beneficiary. will they be able to use the 529 money to pay back the 14,770 that was paid for using the government loan? This payment went directly to the school. I've seen other posts of similar situations where the student is able to reimburse themselves, you have called it a tax loophole. thank you!

Hal_Al

Employee

Q. Will they be able to use the 529 money to pay back the 14,770 that was paid for using the government loan?

A. A 529 plan can be used to pay off student loans (a recent law change). But there is a $10,000 lifetime limit for doing so. You are better off allocating expenses directly to the 529 distribution and saving the loan reimbursement for later (when you no longer have any actual expenses).

Q. Will they be able to use the 529 money to pay back the 14,770 that was paid for using the government loan? This payment went directly to the school. I've seen other posts of similar situations where the student is able to reimburse themselves, you have called it a tax loophole.

A. Yes, you can effectively reimburse yourself. But, the 529 plan to be qualified (tax free) you have "to say" you used that distribution to pay qualified expenses (or you actually made a student loan payment).

This was explained at your other post.

https://ttlc.intuit.com/community/college-education/discussion/re-can-i-get-reimburse-from-529-for-subsidize-loan-that-used-to-pay-toward-education-expenses-in-the/01/3406608#M57418