Lana Oconnell
The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 allows 529 plan holders to make penalty-free withdrawals of up to $10,000 to pay off student loan debt for themselves and each of their siblings. This change in legislation has expanded the functionality of 529 plans, which were originally intended to be savings vehicles for college expenses. Now, 529 plans can be used for a variety of educational purposes, including K-12 tuition, professional certifications, and apprenticeships. This has provided families with greater flexibility in spending 529 plan money and created more options for those concerned about both paying for college and tackling post-graduation student debt.
| Characteristics | Values |
|---|---|
| Can 529 funds be used to pay off student loans? | Yes, thanks to the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, 529 plan holders can make penalty-free withdrawals to pay off student loan debt. |
| Who can use 529 funds to pay off student loans? | The designated beneficiary and each of their siblings, or a parent if the beneficiary is changed |
| How much can be withdrawn from 529 funds to pay off student loans? | Up to a lifetime maximum of $10,000 per person |
| What are the tax implications of using 529 funds for student loan repayment? | The portion of student loan interest paid by these distributions is ineligible for the student loan interest tax deduction for regular income taxes. |
| What are some scenarios where using 529 funds for student loan repayment can be beneficial? | Using leftover funds from a sibling's 529 plan, tapping into surplus funds due to early graduation, repaying parent loans taken out for a child's education, and minimizing the impact on financial aid eligibility |
| Are there any restrictions on using 529 funds for student loan repayment? | Yes, the $10,000 limit is per borrower, and it applies to distributions from all 529 plans combined. |
| Can 529 funds be used for other purposes besides student loan repayment? | Yes, 529 plans can also be used for qualified education expenses, such as tuition fees, K-12 expenses, apprenticeships, and vocational training. |
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What You'll Learn
Student loan repayment limits
The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 allows 529 plan holders to make penalty-free withdrawals to pay off student loan debt for the designated beneficiary and each of their siblings. There is a lifetime maximum limit of $10,000 per individual. The SECURE Act of 2019 expanded the functionality of 529 plans, which were previously intended for higher education expenses.
The Tax Cuts and Jobs Act (TCJA) of 2017 allowed 529 plans to be used to pay for up to $10,000 per student in K-12 tuition each year. This was further expanded by the One Big Beautiful Bill Act of 2025, which allowed 529 plans to be used for several K-12 expenses in addition to tuition, such as curricular materials, books, online educational materials, tuition for tutoring, and fees for standardised tests.
The SECURE 2.0 Act of 2022 allows for up to $35,000 to be rolled over from a 529 plan into a Roth IRA. However, this is still subject to annual Roth IRA contribution limits, and the 529 plan must have been open for more than 15 years.
In 2025, 529 plans were expanded to cover a broader range of professional education and training costs, including skilled trades and vocational training, professional licenses and certifications, required continuing education, as well as books and other materials required for these programs.
There are several scenarios in which it may be useful to pay off student loans through 529 plan distributions. For example, using leftover funds from a 529 plan, repaying loans a parent borrowed to pay for their child's education, or using 529 funds to minimise the impact on a student's eligibility for financial aid.
In 2025, the House and Senate proposed reforms to the federal student loan landscape, including the elimination of existing repayment plans and new limits on federal borrowing. The Senate's version of the bill maintained the goal of limiting the amount students and their families can borrow, with different thresholds for graduate and professional borrowers. The RAP income-driven repayment plan will calculate monthly payments as between 1% and 10% of a borrower's discretionary income, and borrowers will be eligible for loan forgiveness after 30 years.
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529 plan leftover funds
A 529 plan is a tax-advantaged college savings vehicle that can be used to pay for a beneficiary's post-secondary education expenses. The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 allows for penalty-free 529 distributions to repay the beneficiary's student debt, up to a lifetime limit of $10,000. This act also allows for additional withdrawals of up to $10,000 for each of the beneficiary's siblings.
Leftover 529 funds can be used to pay off student loan debt. As of 2024, through a provision of the SECURE 2.0 Act, you can roll a portion of the unused 529 funds into a Roth IRA for that 529 named beneficiary. There are some restrictions to this option, including that the 529 plan must have been in existence for at least 15 years prior to the rollover, and the annual rollover limit is subject to the Roth IRA annual contribution limit. The maximum lifetime rollover limit is $35,000. It is recommended to check with a financial professional before making this move, as there could be tax impacts related to some options.
If the 529 plan beneficiary has an open student loan balance, you can use up to $10,000 of the leftover 529 funds to pay off their federal and private student loans. You can also use the leftover funds to pay off student loans borrowed by a sibling without having to change the name of the beneficiary.
There are several possible scenarios in which it could be useful to pay off student loans through 529 plan distributions. These could include using money left over from a sibling's 529 plan, tapping into surplus 529 funds that are available as a result of a student graduating early, or repaying loans a parent borrowed to pay for a child's college education.
Additionally, 529 plans can be used for a broader range of professional education and training costs, including costs for skilled trades and vocational training, professional licenses and certifications, required continuing education, as well as books and other materials required for these programs.
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Tax advantages
529 plans are primarily intended to pay for higher education expenses. However, the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 allows for penalty-free 529 distributions for the purpose of repaying a beneficiary's student debt, up to a lifetime limit of $10,000. The SECURE Act also allows for additional withdrawals of up to $10,000 for each of the beneficiary's siblings. This means that a family with three children could withdraw a total of $30,000. It is important to note that the portion of student loan interest paid by these distributions is ineligible for the student loan interest tax deduction for regular income taxes.
The SECURE Act of 2019 made it possible for 529 funds to be withdrawn to repay the beneficiary's student debt (or that of their siblings), limited to $10,000 per individual. This is a significant advantage as it allows individuals to make tax-free withdrawals from their 529 plans to pay off student loan debt. Previously, it was not possible to withdraw funds from a 529 plan without incurring taxes and a 10% penalty.
In addition to the SECURE Act of 2019, the Tax Cuts and Jobs Act (TCJA) of 2017 expanded the functionality of 529 plans. The TCJA allows 529 plans to be used to pay for up to $10,000 per student in K–12 tuition each year. This includes public, private, and religious schools. The $10,000 limit will increase to $20,000 in 2026.
Furthermore, the SECURE 2.0 Act of 2022 allows for rollovers of up to $35,000 from a 529 plan into a Roth IRA. However, these rollovers are subject to annual Roth IRA contribution limits, and the 529 plan must have been open for more than 15 years.
The changes to the 529 plans offer greater flexibility for individuals and families. This flexibility can ease the anxiety associated with locking up money for a single purpose and provide more options for paying for college and tackling post-graduation student debt.
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Retirement savings
The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 allows 529 plan holders to make penalty-free withdrawals to pay off student loan debt for the designated beneficiary and each of their siblings, up to a lifetime maximum of $10,000 per person. The SECURE Act also allows for additional withdrawals of up to $10,000 for each of the beneficiary's siblings. This means that a family with three children could withdraw a total of $30,000.
The SECURE Act 2.0, passed in 2022, further expanded the ways 529 funds can be used. One significant change is the ability to transfer leftover funds from a 529 plan to a beneficiary's Roth IRA. This allows for up to a lifetime limit of $35,000 to be transferred tax-free and penalty-free to a beneficiary's Roth IRA, providing certain requirements are met. These include annual contribution limits for Roth IRAs, and the 529 plan must have been open for at least 15 years.
The SECURE Act 2.0 also incentivizes new graduates to pay down their student loans without sacrificing retirement savings. Under this act, employers are allowed to treat student loan payments as contributions to a retirement account and provide a matching contribution. This means that when an employee pays down a student loan, the employer can match it with a contribution to the employee's retirement plan, such as a 401(k).
Another benefit of the SECURE Act 2.0 is that it allows families to save after-tax dollars for college costs. This can be especially useful for those with student loans who may be forgoing saving for retirement. By utilizing the SECURE Act 2.0, individuals can address both their student loan debt and retirement savings goals simultaneously.
Overall, the various iterations of the SECURE Act have provided individuals with greater flexibility in utilizing their 529 plan funds. This enables them to not only pay for qualified education expenses but also to address student loan debt and retirement savings in a more comprehensive manner.
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Student loan interest deduction
In the US, the student loan interest deduction allows federal student loan borrowers to deduct up to $2,500 of student loan interest per tax return per tax year. This deduction is an adjustment to income, so it is not necessary to itemize deductions to claim it. The deduction amount is gradually reduced and eventually eliminated by phaseout when the borrower's modified adjusted gross income (MAGI) amount reaches the annual limit for their filing status.
To be eligible for the deduction, the borrower must meet several requirements. They must have paid interest on a qualified student loan within the specific tax year for which they are claiming the deduction. Their filing status must not be "married filing separately", and their MAGI must be less than a specified amount, which is set annually. Additionally, neither the borrower nor their spouse can be claimed as dependents on someone else's tax return.
The student loan interest deduction can be beneficial for higher-income taxpayers as it can reduce their taxable income and, in some cases, lower their tax bracket. However, if the borrower's MAGI exceeds a certain threshold, the deduction may be reduced or eliminated. For example, for tax year 2024, a married couple filing jointly with a modified AGI of $195,000 or more cannot claim the deduction.
The student loan interest deduction is separate from the use of 529 plans to pay off student loans. While the deduction helps reduce taxable income, 529 plans are savings vehicles that offer tax advantages for education-related expenses, including, in some cases, student loan repayments.
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Frequently asked questions
Yes, you can.
You can use 529 funds to pay off student loans up to a lifetime limit of $10,000 per borrower.
You can use 529 funds to pay off student loans for the designated beneficiary and each of their siblings.
The benefit of using 529 funds to pay off student loans is that it can help you avoid taxes and penalties, and stretch your savings further.
Yes, 529 funds can also be used to pay for other qualified education expenses such as tuition fees, books, and materials.
