Did I mess up this 529 plan withdrawal?

Photo: pixabay.com

Q. We had a 529 account for our granddaughter’s college expenses. This past year, we withdrew the money and paid on her student loan. When we filed income tax 2018, accountant said we had to pay taxes on the dollars paid. Can you explain this?
— Grandma

A. A 529 plan is a terrific way to save for college expenses.

That’s because of the tax advantages.

The earnings are not subject to federal or state income taxes – usually – when used for qualified education expenses of the designated beneficiary, said Michael Karu, a certified public accountant with Levine, Jacobs & Co. in Livingston.

Qualified expenses include tuition, fees, books, room and board and even a computer – if mandated by the eligible educational institution, he said.

“Unfortunately for you, there are no provisions for using 529 funds to repay college loans,” Karu said. “The funds should have been withdrawn while your granddaughter was in college to pay current expenses.”

So, we’re sorry to say, you’re stuck with the tax bill.

Email your questions to .

This story was originally published June 10, 2019.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.