Question on a NY 529

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Ron Scott
Posts: 389
Joined: Tue Apr 05, 2016 5:38 am

Question on a NY 529

Post by Ron Scott » Wed Sep 06, 2017 6:49 pm

Daughter is finishing her Masters. I overfunded the 529 because she underestimated the amount her employer would pay. Not a bad problem...

Her employer is withholding taxes for some of the coursework and my question is, can I pay the taxes with funds from the 529?

CppCoder
Posts: 556
Joined: Sat Jan 23, 2016 9:16 pm

Re: Question on a NY 529

Post by CppCoder » Wed Sep 06, 2017 7:33 pm

Ron Scott wrote:
Wed Sep 06, 2017 6:49 pm
Daughter is finishing her Masters. I overfunded the 529 because she underestimated the amount her employer would pay. Not a bad problem...

Her employer is withholding taxes for some of the coursework and my question is, can I pay the taxes with funds from the 529?
I assume you mean and not pay taxes on the gains. I think the answer is no, but you should consult IRS publication 970, Chapter 8, Qualified Tuition Program and Chapter 11, Employer Provided Educational Assistance.

Now that I read your question again, actually, I'm not exactly sure what you are asking. When you say the employer is withholding taxes, what exactly do you mean? If they are providing educational support, the first $5250 is excluded from taxable income, so there will be no taxes on that part (Chapter 11). Your daughter won't owe those "withheld" taxes. Per Chapter 8, this expense is deducted from the qualified educational expenses before determining the taxable portion of a distribution, so it reduces the amount you can claim are qualified if you are then funding a balance from the 529.

Here is a link to the IRS publication:
https://www.irs.gov/pub/irs-pdf/p970.pdf
You should definitely read this as I don't claim any expertise in this area. I'm hoping maybe my post will give your thread a bump so someone can give you a more definitive answer and correct me if I'm wrong.

Ron Scott
Posts: 389
Joined: Tue Apr 05, 2016 5:38 am

Re: Question on a NY 529

Post by Ron Scott » Thu Oct 12, 2017 2:56 pm

I'm not finding what I need in the guidance...could be me.

Essentially, she's got an income line item in her paystubs and W2 called "Taxable Tuition Reimbursement" and a hefty "income" amount that they withdraw taxes from. Seems to me whether it's tuition or tax on tuition, a 529 should cover it.

No?

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