Qualified 529 expenses generally include anything a student needs to enroll in and attend an accredited college, university, vocational or technical school. Eligible expenses also include certified and registered apprenticeship expenses, certain payments on qualified education loans, and up to $10,000 per year per designated beneficiary from all
529 accounts for tuition in connection with an eligible private, religious or public primary or secondary school. Withdrawals from a 529 account, including any earnings, are tax-free when they are used to pay for qualified education
expenses.Footnote 1While the rules cover a large range of education costs, "Some expenses that people assume are qualified may not be," says Richard Polimeni, head of Education Savings Programs at Bank of America. "It's important to know the difference."
"Some expenses that people assume are qualified may not be. It's important to know the difference."
— Richard Polimeni, head of Education Savings Programs at Bank of America
What education-related expenses definitely qualify?Footnote 1
Money from a 529 account can be used for major post-secondary education costs such as:
- Required tuition, fees, books, supplies and equipment.
- Certain room and board expenses, which may include food purchased directly through the college or university (for the stipulations of off-campus living — see below).
- Computers or peripheral equipment, software and the cost of internet access if used primarily by the designated beneficiary while enrolled in an eligible educational institution.
- Expenses related to students with special needs.
- For students living off campus, rent, utilities and food may qualify, if those expenses do not exceed the allowance for room and board, as included in that institution's cost of attendance. It's a good idea to contact the school's financial aid department for the exact figure.
- Up to $10,000 per year per designated beneficiary from all 529 plan accounts for tuition in connection with enrollment or attendance at an eligible private, religious or public primary or secondary school.
- Expenses for fees, books, supplies, and equipment required for the participation of a designated beneficiary in a registered and certified apprenticeship program.
- Payment of qualified education loans up to a lifetime maximum of $10,000 for a designated beneficiary or a sibling of the designated beneficiary.Footnote 1
Qualified vs. Non-qualified ExpensesFootnote 1 |
| Qualified |
Non-qualified |
| Enrollment fees |
Travel expenses |
| Tuition |
College test prep |
| Certain room and board (on-campus) |
Health insurance |
| Certain rent, food and utility bills (off-campus) |
Personal living expenses |
| K-12 tuition ($10,000 per calendar year) |
College entrance exam fees |
| Special needs expenses |
Fees for sports or club activities |
| Computers, software, Internet access |
|
| Qualified education loan payments (lifetime maximum of $10,000 per designated beneficiary or sibling of designated beneficiary) |
|
| Fees, books, supplies and equipment for participation in a registered and certified apprenticeship program |
|
What's not eligible?
Here's where things may get confusing. "Many people assume travel is covered," Polimeni says. "After all, students need to get to and from school. But as far as the tax law is concerned, expenses such as gas, parking and airfare are considered non-qualified expenses."
Likewise, pre-enrollment expenses such as test prep courses, are, unfortunately, ineligible. So is health insurance, even if purchased through the school.
Costs of extracurricular activities, from ballet lessons to membership dues at a sorority or fraternity, are also not eligible.
What if you saved more than you need?
There are plenty of options: Use the extra funds for that student's graduate school,
designate a new beneficiary from among certain members of the designated beneficiary's family, or even name yourself. The same tax (and other) benefits apply so long as the money is used for qualified education expenses. If you don't name a new designated beneficiary and decide to use the money for non-qualified purposes, you will be subject to federal and possibly state and/or local income taxes on the account's earnings, possibly including a 10% additional federal tax on the earnings.