<p>I'm not sure if this is the right place to post this, but any feedback would be welcome. I have a 529 college savings plan for my daughter, who is now a freshman. There is more than is needed in the first year, but not enough for the whole 4 years available. I continue to put funds into the account. I have also taken out an interest free loan from my employer that is available for college tuition and R&B. The most I can borrow from that is about 1.5x the annual cost of attendence. So, for the first semester I have paid the university using the interest free loan. Ideally, I would prefer to use the interest free loan for the maximum amount available, then draw from the 529 plan. However, if all of the expenses funnel through the 529 plan, then she will be out of school with approximately 1.5x annual cost still in the 529 account. Can I withdraw this afterwards to pay off the loan, and have it still qualify as an educational expense? More generally, can 529 plans be used to pay off loans used for college expenses after the student graduates?</p>
<p>If you’re paying qualified higher education expenses (QHEE) from a 529, the withdrawal needs to occur in the same tax year as the expense. So for example, you can’t withdraw for tuition in December that’s due in January. If you’ll have enough in the 529 to pay for years 2-4, then you can delay withdrawals until those years. If you end up with too much in the 529, and it’s a 529 where you’re the owner and your D is the beneficiary, you can roll the excess over into the 529 of another beneficiary, if you have one.</p>
<p>newma, I had a similar thought when D was offered a subsidized loan. If only she could take the loan, then if there were enough 529 funds left at the end of her 4 years, use them to pay off the loan. However, like vballmom said, this won’t work because the funds must be used for education expenses in the year which they are withdrawn.</p>
<p>I also made the choice to use subsidized loans now (year 1) and reserve the 529 funds for later years. It seems to make more sense to let the 529 recover/grow and I’m certain that later years will only be more expensive, especially when the graduate rates kick in! The plan for now is to use borrow only subsidized money and use the 529 when expenses reach a level that can’t be paid for out of current income.</p>
<p>Thanks for all your advice, I think I will use the loans first, 529 after.</p>