A 529 plan is a powerful tool that parents and family members can use to save for a child’s education. Contributing to a 529 plan offers tax advantages when the money in the account is used for qualified education expenses. However, there are many 529 plan rules to understand.
Understanding the 529 rules and how they’ll impact your education savings is important to get the most out of your 529 plan.
So, let’s get into it.
What You Can Pay for with a 529 Plan
First off, let’s dive into the qualified expenses of a 529 plan.
Money invested in a 529 college savings plan grows tax-deferred, and qualified distributions are tax-free. Families may also be eligible for a state income tax deduction or credit for 529 plan contributions, depending on where they live (more on that in a minute, though).
Qualified higher-education expenses include costs required for the enrollment or attendance at a college, university or other eligible post-secondary educational institution. The definition of qualified higher education expenses (for 529 plan purposes) also includes up to $10,000 per year in tuition for K-12 schools and up to $10,000 in student loan repayments.
Here is a list of common educational expenses and their qualification status:
Type of expense? | Is it a qualified education expense? |
Tuition and fees | Yes, up to the full amount of college tuition and required fees. Limited to $10,000 per year for K-12. |
Books and supplies | For college expenses only |
Computers and internet access | For college expenses only |
For college expenses only, if the student is enrolled at least half-time | |
Special needs equipment | For college expenses only |
No, costs associated with transportation to and from campus, such as airfare or gas, are not qualified education expenses | |
No, even health insurance policies offered by a school are not considered qualified expenses | |
College application and testing fees | No |
Extracurricular activity fees | No |
Student loans | Yes, with a lifetime limit of $10,000 |
This should help you better understand what you can or cannot pay for using money allotted from a 529 savings plan. If you have any questions about this chart, or any questions about your current status in planning for college, please don't hesitate to reach out! You can contact us via our contact form or give us a call and we will be in touch!
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