Can a parent use the disbursement from a 529 plan to pay on student loans of a non-dependent child and still be tax free to the parent? Child is now 22 yrs old and earned $7000 income but still lives at home.
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Who is the "beneficiary" of the 529 plan? -
Adding to the previous comment, the beneficiary does not need to be a dependent."You said it, they'll never know the difference. Come on, we'll paint our way out!" - Moe Howard
"That's enough! When you didn't know what you were talking about, you really had something! [to Curly]" -Moe HowardComment
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The daughter is the beneficiary. The father received the disbursement.Comment
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Oops, missed the most important part. QTP/529 plan tax-free disbursements only apply to Adjusted qualified education expenses (AQEE). Student loan payments are not an AQEE. See Pub 970."You said it, they'll never know the difference. Come on, we'll paint our way out!" - Moe Howard
"That's enough! When you didn't know what you were talking about, you really had something! [to Curly]" -Moe HowardComment
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From Pub 970 (2025) page 50 this is included in QHEE (I think it was added by one of the SECURE Acts):
No more than $10,000 paid as principal or interest on qualified student loans of the designated beneficiary or the designated beneficiary’s sibling. A sibling includes a brother, sister, stepbrother, or stepsister. For purposes of the $10,000 limitation, amounts treated as a qualified higher education expense for the loans of a sibling are taken into account for the sibling and not for the designated beneficiary. You can’t deduct as interest on a student loan (see chapter 4) any amount paid from a distribution of earnings from a QTP after 2018 to the extent the earnings are treated as tax free because they were used to pay student loan interest.Comment
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Thanks all this has been very helpfulComment
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Rick is correct. Section 529(c) was amended. In part it contains:
(9) Treatment of qualified education loan repayments
(A) In general. Any reference in this subsection to the term qualified higher education expense shall include a reference to amounts paid as principal or interest on any qualified education loan (as defined in section 221(d)) of the designated beneficiary or a sibling of the designated beneficiary.
(B) Limitation.
The amount of distributions treated as a qualified higher education expense under this paragraph with respect to the loans of any individual shall not exceed $10,000 (reduced by the amount of distributions so treated for all prior taxable years).
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Thanks for the correction about loan interest, I was looking at 2024 version of the pub, (I usually download pubs at the end of filing season when I know they're final).
Of course, I should have just looked it up in TheTaxBook!"You said it, they'll never know the difference. Come on, we'll paint our way out!" - Moe Howard
"That's enough! When you didn't know what you were talking about, you really had something! [to Curly]" -Moe HowardComment
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