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Hi all,

I have read that 529 accounts can be used to repay student loans, up to a $10,000 "lifetime limit." Does anyone know the contours of this "lifetime limit?" For example, can Mom, Dad, and Grandma each pay off $10k of my student loans using their own 529 plans, for a total of $30k?

If so, I am wondering if this alternative plan would also work:

(1) Open a dozen 529 accounts and set myself as the beneficiary.
(2) Contribute to each account, enjoying tax-free growth for a few years until each account reaches $10,000
(3) Withdraw $10,000 tax-free from each account and pay off all my student loans

Does anyone know if this would be feasible? Thanks!

I mean, fraud is all fun and games until the government actually investigates you.

But this seems like a really dumb plan (even assuming it weren't illegal). What's the benefit to using 529 accounts to pay off loans instead of to finance education and prevent you from taking out loans in the first instance? I'm struggling to see where you end up saving money in this scheme.

cavalier1138 wrote: ↑

Thu Jun 24, 2021 5:40 pm

I mean, fraud is all fun and games until the government actually investigates you.

But this seems like a really dumb plan (even assuming it weren't illegal). What's the benefit to using 529 accounts to pay off loans instead of to finance education and prevent you from taking out loans in the first instance? I'm struggling to see where you end up saving money in this scheme.

Two common strategies to pay off student loan debt are (i) pay it off in the normal course, either over 10 yrs or quicker through a ReFi; or (ii) pay minimums each month and use any excess cash to try to beat 5-6% interest in a brokerage account. The plan I proposed is similar to the latter option, but avoids the capital gains you'd pay when you liquidate the brokerage account.

What part of the scheme do you think is illegal/fraudulent? You are allowed to open multiple 529 accounts for unborn children and set yourself as a beneficiary.

MrLions wrote: ↑

Thu Jun 24, 2021 6:04 pm

What part of the scheme do you think is illegal/fraudulent? You are allowed to open multiple 529 accounts for unborn children and set yourself as a beneficiary.

You are "allowed" to set up several bank accounts you then use to launder drug money. You are also "allowed" to not report certain streams of income to the IRS. Both of those things are still crimes.

Your post history indicates that you're in (or recently graduated from) law school. Please tell me I don't need to explain why setting up 10 accounts for "future children" with the sole intent of avoiding taxes on your own investments might just qualify as fraud in the eyes of the government.