Wondering what qualifies as an education expense for a 529 plan? Get the scoop on what you can and can’t use your 529 plan for.
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A 529 plan is a tax-advantaged savings plan designed to encourage saving for future college costs. 529 plans, legally known as “qualified tuition plans,” are sponsored by states, state agencies, or educational institutions and are managed by investment companies.
529 plans offer tax and financial aid benefits. The money in a 529 plan grows tax-deferred, and withdrawals are tax-free as long as they’re used for qualified education expenses. Qualified expenses include tuition and fees at eligible colleges and vocational schools, as well as certain Room & Board costs. Withdrawals used for other purposes may be subject to ordinary income taxes and a 10% federal tax penalty.
To learn more about 529 plans, visit the website of your state’s sponsoring agency or contact a financial advisor.
Qualified Education Expenses
529 plans are a tax-advantaged way to save for college. The earnings on the investment grow tax-deferred and can be withdrawn tax-free if used for qualified education expenses. So what exactly are qualified education expenses? Let’s take a closer look.
Tuition and Fees
The cost of tuition, fees, books, and other supplies required for enrollment or attendance at an eligible educational institution are considered qualified education expenses. This includes:
-Tuition and mandatory fees
-Room and board (if the student is enrolled at least half time)
-Books, supplies, and equipment
-Special needs services required for the beneficiary to attend school
Room and Board
In order to be considered a qualified education expense, the room and board costs must be for a student who is enrolled at least half-time in a degree program at an eligible educational institution. Room and board expenses can include:
-Rent or tuition for on-campus housing
-Meals (whether purchased through a meal plan or not)
-Fees for a dormitory or other on-campus housing
If the student is living off campus, the room and board expenses must be reasonable and customary.
Books and Supplies
Qualified education expenses are incurred during the enrollment or attendance period. For example, if you incur qualified education expenses in December for the spring semester, but do not pay until January, the expenses are considered incurred in December.
Books and supplies required for courses of instruction at an eligible educational institution (including a book store operated by the institution) generally qualify as a qualified education expense. This is true whether you attend the institution on a full-time, part-time, or less than half-time basis.
Special Needs Services
There are a few things to keep in mind when it comes to special needs services and 529 plans. First, you’ll want to make sure that the expenses you’re incurring are for services that are required as a result of the beneficiary’s disability. These services must be specified in an Individualized Education Program (IEP) or an Individualized Family Service Plan (IFSP). Additionally, the services must maintain or improve the beneficiary’s functioning level and help the beneficiary be prepared for employment or postsecondary education.
Qualified expenses for 529 plans generally include tuition, room and board, fees, books and supplies. Some plans may also cover expenses for computers and internet access. Withdrawals used for non-qualified expenses may be subject to taxes and penalties.