How can the parent repay their own federal and private parent loans with a 529 Plan?

ibuzzint 2024-03-12 02:14:27 UTC #1

Per this article under New Strategies,
https://www.savingforcollege.com/article/strategies-for-using-a-529-plan-to-repay-student-loans

".....the account owner can change the beneficiary of a 529 plan to the beneficiary’s parent, so that the parent can take a $10,000 distribution to repay their own federal and private parent loans."

I changed the beneficiary of a 529 plan to myself to pay off my own student loan. I was not allowed. Why?

dcandmc 2024-03-12 12:32:36 UTC #2

More information is needed. Who said you were not allowed to change the beneficiary of a 529 plan to yourself, and what reason was given? Who is the account owner? Is the 529 account a UTMA/custodial account?

ibuzzint 2024-03-14 02:30:12 UTC #3

I am the account owner and designated beneficiary. I was informed by the Attorney Supervisor that "... the legislative intent behind this law is to allow for the repayment of the beneficiary’s sibling’s student loans, not a parent’s student loans." Therefore, they would not honor the request.

dcandmc 2024-03-14 13:37:42 UTC #4

What is an "Attorney Supervisor"? And who does this person work for?

The legislative intent is to allow for the qualified student loans of the designated beneficiary or the designated beneficiary's sibling to be repaid, up to a limit of $10,000 using 529 funds without tax or penalty. If you are the designated beneficiary, your qualified student loans are eligible for repayment from your 529 account.

How are you being prevented from taking a distribution from the 529 account and then using the money to repay your qualified student loans? The 529 plan administrator shouldn't be acting as a gatekeeper to make sure you are only using the money in certain ways that they approve of. That's not their job. If 529 money is used for a non-qualified purpose, it's up to the recipient of the funds (beneficiary or account owner) to make the proper reporting on income tax returns. If you are the account owner, it's your money and you should be able to use it for whatever you want, subject to income tax and possibly a penalty on the earnings portion of distributions used for non-qualified purposes. Tell the plan administrator/"Attorney Supervisor" to pack sand.