Sorry for the question that might sound silly, but here’s the deal. I graduated from law school, have 2 kids, and got married young. My parents didn’t save a penny for my education, so I ended up with over $100k in student loan debt. When my kids came along, I wanted to do things differently, so I put around $30,000 in 529 plans for them using a bonus I received. But now I’m thinking maybe that wasn’t the best move considering my high-interest student loans.
The $30,000 has grown to about $36,000 (so a $6,000 gain). My biggest loans are parent plus loans in my parents’ name, but I’ve always taken responsibility for repaying them.
After reading some stuff on this subreddit, I believe I can transfer the funds from my kids’ 529 accounts to an account in my parents’ name. Then, I can withdraw the entire balance and use it to pay off the parent plus loans without facing any penalties. Since $30,000 will be a withdrawal of principal (no penalty), and the $6,000 is below the $10,000 allowed for using 529 plans to repay student loans, I think it should work.
Can you confirm if my understanding is correct? I’m a first-generation college student, so I’m navigating all of this on my own, with your help of course, which I truly appreciate.
Farewell Seeker of Financial Wisdom, Thank you for your help!
Response from THE MONEY MINDER:
Hello There,
Hey there,
I understand where you’re coming from, and it’s great that you’re thinking ahead for your kids’ future. First of all, kudos to you for taking the initiative to set aside funds for their education in 529 plans despite the student loan debt you’re dealing with. It shows your commitment to their future, which is commendable.
Regarding your plan to move the funds to an account in your parent’s name and then using it to repay the parent plus loans, it’s important to make sure you have a clear understanding of the rules and regulations surrounding 529 plans and student loan repayments. The information you’ve read on this subreddit seems to be on the right track, but it’s always a good idea to consult with a financial advisor or specialist who can provide you with personalized advice based on your specific situation.
Before making any moves, make sure you fully understand the tax implications, potential penalties, and any other factors that may come into play. It’s crucial to weigh the pros and cons of this decision and consider all aspects before taking action. Additionally, since the parent plus loans are in your parents’ name, communication with them about your plan to use the 529 funds to repay the loans is essential.
In summary, while your idea seems feasible, I recommend seeking professional advice to ensure you’re making the best financial decision for your situation. Taking a strategic and informed approach will help you navigate this process smoothly. All the best from THE MONEY MINDER.
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