college

Use 529 cash to pay college loan?

Don TaylorQuestionDear Dr. Don,
My son is now in graduate school and is paying for it himself. May I use the money left in his 529 plan to pay off some of his undergraduate loans?
-- Diane Diplomas

AnswerDear Diane,
You can't raid the Section 529 plan to pay off his student loans and capture the tax benefits associated with distributions out of the plan for qualified higher education expenses. Savingforcollege.com, a Bankrate company, discusses this issue in a Q&A, "No tax perk if 529 money pays student loan."

Work with your tax professional if you're uncertain how much you can repay using this approach.

An alternate approach is to use the Section 529 monies to pay his qualified higher education expenses in graduate school, assuming the 529 plan allows it. (Most state plans do allow it.) Depending on how he is funding his graduate studies, he may be able to use the money you free up in his graduate school budget to pay off some of his undergraduate student loans.

Want to see the big (financial) picture? Get Bankrate's major financial stories of the week delivered to your inbox every Friday.

Ask the adviser

To ask a question of Dr. Don, go to the "Ask the Experts" page, and select one of these topics: "Financing a home," "Saving & Investing" or "Money." Read more Dr. Don columns for additional personal finance advice.
 

Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.

News alert Create a news alert for "college finance"

advertisement

Show Bankrate's community sharing policy
          Connect with us
  • at
  • Private student loan search by SimpleTuition.com
advertisement
FRUGAL NEWSLETTER

Discover new ways to cut costs and save more every day. Reduce your spending, not life’s pleasures. Delivered weekly.

advertisement
Partner Center
advertisement

Connect with us