Opening a 529 plan to save for your child’s college expenses can be a great way to build savings while reaping tax benefits. Remember, some of the benefits of a 529 plan include tax free growth and tax free withdraws if the money is used for “qualified education expenses”. But one thing that stops many would-be 529 owners is understanding what exactly a 529 plan will cover – what exactly are qualified education expenses?
If you’ve been considering opening a 529, here are some common qualified expenses you should be aware of. We also go into depth on some of the non-qualified expenses that people sometimes get mixed up and “think” they do qualify. Make sure you don't fall into that trap.
Video On 529 Plan Expenses
Qualified Expenses For A 529 Plan
A 529 plan only covers expenses that are related to post-secondary education. However, there are rules. Most qualified expenses cannot exceed the cost estimates made by the school that the 529 beneficiary will be attending. Typically the school’s financial aid office will mail this to students or post it on their website. For example, you can find the estimated cost of attendance for UCLA here.
Here’s what’s covered:
Tuition – Tuition is a qualified expense for both full and part time students at accredited institutions. To be accredited simply means the college or university has passed standards set by a reviewing committee. While the majority of colleges are accredited be sure to ask the financial aid office ahead of time.
Room and Board – If the student is attending college half-time or more and the room and board are paid directly to the college or university this is a qualified expense.
If room and board are to be paid to a landlord and grocery store, the budget is set by the school and is available to students who are attending half-time or greater. If the rent paid to a landlord is higher than the school’s room and board estimate the excess is not considered a qualified expense.
For example, using our UCLA estimated cost above, it’s estimated that it will cost $9,800 for room and board off campus. That means that you cannot use more than $9,800 per year from your 529 plan to be “qualified”.
Technology Items – You can use a 529 plan to cover technological needs such as computers, printers, laptops and even internet service. These items must be used by the plan beneficiary while enrolled in college. You can also use this to get software that’s required for school – for example, maybe you need to install Microsoft Word or Adobe Photoshop to get the right tools for class. Make sure you check out your campus bookstore and look for “Education” versions of software – it’s much cheaper!
Books and Supplies – Books and supplies are qualified expenses but only the ones that are required. Also, this budget will be set by the school, but if it’s a required expense of your class, you can always use your 529 money. Beyond textbooks, some common items include lab supplies, scantrons, and even basics like pen and paper.
Expenses That You Think Might Qualify, But Don’t
There are also expenses that you might think qualify for 529 plan distributions, but you’d be surprised to learn that they don’t.
Transportation and Travel – If your child is going away to school, you’re going to inevitable deal with transportation and travel expenses. You need to move them in, move them home, and you’re likely going to fly them home for holidays and vacations. But none of these expenses are qualified education expenses, so you can’t use your tax free 529 plan money for these.
Student Loan Repayment – It seems like you should be able to use your 529 plan funds to pay your student loans, because you used your student loans to pay for school. But sadly, you cannot use your 529 plan money to repay your student loan debt. If you do, you’ll be subject to taxes and a penalty on the withdrawal.
General Electronics and Cell Phone Plans – Cell phones are an everyday part of life. As such, they are not considered an education expense, and while “necessary”, they can’t be expensed and paid for with your qualified distributions from your 529 plan.
Sport and Fitness Club Memberships – Many colleges offer sports or fitness clubs for their students to use, and they typically charge a small monthly fee. And even though the college or university bills this expense, it’s not considered an education expense. Since it’s not an education expense, you can’t use your qualified 529 plan money to pay for it.
Insurance – Health insurance is so important for college students, and if you don’t stay on your parent’s plan, many people opt to use a plan provided by the college or university. Many schools offer health services and insurance on campus, which is helpful. However, once again, just because the expense is billed by the university, it’s not education related, and so you cannot use your 529 plan money for it without paying a penalty.
What Happens If You Use A 529 For A Non-Qualified Expense?
Many parents worry that:
- Their child will not end up going to college
- They’ll need to use the 529 money for expenses other than the ones listed above
So what exactly happens when you use a 529 plan for a non-qualified expense?
If you remember from our previous 529 articles, one of the main benefits of investing in a 529 is the federal and sometimes, state, tax breaks. Owners of 529 plans are given these breaks when the money saved is specifically use for college expenses. In the event that you need to withdraw the money for a different reason, you’ll have to pay federal taxes on the account earnings and a 10% penalty. If you’ve received a state tax break, you may also have to pay that back as well. Make sure you check with your tax preparer because every state has different rules around this.
You should also be aware that if one of your children decides not to go to college, you could change the beneficiary on the account without penalty.
How Do You Withdraw Your 529 Plan Funds?
Depending on your state’s plan, there are typically several ways to withdraw your 529 plan money. For example, Scholarshare allows you to request a withdrawal online, by mailing in a form via snail mail, or by calling their call center.
You can have the funds sent to the participant, the beneficiary, the school directly, or a third-party. Many 529 plans, including Scholarshare, allow for ETF transfers as well, which can speed up the process dramatically.
When you take a withdraw, you are not required to provide any proof of whether the money is being used for qualified or non-qualified expenses. However, you are required to declare it to the IRS when you file your taxes, and so it’s important to maintain accurate records should you need them.
So, Is A 529 Worth it?
There are many benefits to participating in your state’s 529 plan. (See a big list of them here.) But it’s important that you know exactly what you can and can’t use your 529 plan for.
When it comes to time to actually use the money you’ve saved, be sure that you know the laws and are utilizing your 529 savings in the most efficient way possible. If you have specific questions, it never hurts to speak to an accountant that’s familiar with 529 plans.
Make your college savings work for you!
Robert Farrington is ScholarShare’s blogger ambassador. All thoughts and opinions are his own.
Do fees for taking GRE exams qualify as reimbursable expenses for 529 holders?
It is not a qualified expenditure since your child does not currently attend and is not enrolled at a school for which this test is a requirement.
What about tutors or tutoring services? Do those qualify?
No, tutoring is not an eligible expense for higher education.
Are there any special restrictions on costs incurred for higher education outside the U.S.?
Yes, the costs must be incurred at an eligible school according to the Department of Education. Here’s the list of eligible schools: https://fafsa.ed.gov/FAFSA/app/schoolSearch
Many thanks. Our daughter’s college in the U.K. is listed. Oddly, for the search utility to work, I had to select a state, but it didn’t matter which. (I picked Alabama, the first state on the drop-down list.)
If a student receives a placement and needs to travel 68 miles R/T would mileage be a qualified 529 expense? Also if she needs to purchase meals outside of her meal plan is that a qualified expense?
Mileage/transportation expenses are no QHEE (Qualified Higher Education Expenses) and so they do not qualify for tax free 529 plan withdrawals.
As for meals, it doesn’t matter if she has a meal plan or not. The total amount allowed for meals is found on your school’s Cost of Attendance record, which can be obtained at the financial aid office (and on their website most of the time). Let’s say that the COA for meals is $3,000 – that’s what’s allowable. If the meal plan costs $2,000, but she spends another $2,000 – you can take $1,000 more to get to $3,000. Does that make sense?
My daughter is enrolling at a Community College that doesn’t offer dorms or meals. They don’t have a Cost of Attendance. Can we use the COA from a nearby school to determine how much we can withdraw from the 529 to cover her living expenses without incurring a penalty or tax obligation?
Hi Bob, they are required to supply a cost of attendance – they might not post it online (which is very rare), but you can get a copy from the financial aid office at the school.
Hi, my daughter is commuting to college. I know you cannot use mileage as a qualifying expense but what about parking fees at the university?
Thanks, Kim
Sadly, parking fees are not qualified higher education expenses. It’s one of the reasons why the college will bill them separately.
Thank you! another question if I may … what about orientation fee? It cost $151 and attendance was required in order for my daughter to begin registering for classes.
Yes, that would qualify since it was required for attendance.
How about what you pay to furnish their dorm room at the start of freshman year? Is that a qualified expense?
Negative – all dorm room furnishings are considered personal items and are NOT qualified higher education expenses.
Well darn it. Thank you for your prompt response. Very good, helpful article!
Hi – do any ROTC expenses qualify? My son was issued one PT uniform but has PT everyday. He purchases 3 more sets and a better pair of boots. Do they qualify? ROTC pays for the lowest level meal plan that he upgraded to a better meal plan. Does the difference qualify? Also – how about parking expenses or orientation expenses?
Hi Christine,
Anything beyond what the ROTC pays for is your son’s personal expenses – not a qualified higher education expense for your 529.
For meals, you can use any difference between what the ROTC pays for an what your school says is part of the Cost of Attendance for meals – found on the financial aid website/office of your school.
Parking is never a qualified education expense.
Any mandatory orientation fees count and are qualified since they are mandatory to attend the school.
My granddaughter is in her 3rd year of college and has transferred her credits to another university and now living away from home. She is paying rent for a townhouse just off campus. Would her rent be a qualified expense?
It’s qualified up to the amount allowed on the Cost of Attendance (COA) from the financial aid office. The COA will have an amount listed for living off campus.
Based on the published COA record for the total costs per semester, at the school your son attended, can you submit that amount for 529 reimbursement? We have receipts from the school for rent, tuition etc, but did not have a school meal plan and don’t have all the grocery and meal receipts.
You can submit what you spent on groceries and meals as long at it’s below the COA. If the IRS questions your withdraw, the onus is on you to provide documented proof.
Are the costs for mandatory new student conferences approved expenses? What about housing application fees?
The cost of orientation is approved. Transportation to/from is not. Housing application fees can be since their mandatory to get on campus housing.
Would licensure exams be covered for teachers? I am completing my last semester of school and didn’t know if the exams I have to take to become licensed in our state would be considered eligible for reimbursement.
No, that would be considered a a work expense, not an education expense. It’s not related to the actual cost of getting an education, but rather something related to potential future employment.
If it were required for graduation through the University wouldn’t this qualify.
All required fees for curriculum, no?
What do you mean? Anything as a course requirement qualifies.
what about fees you have to pay to apply to colleges?
IRS Publication 970, which covers this general subject of 529 plans, doesn’t specifically discuss college application fees and whether they are qualified education expenses. But the publication does cite “expenses related to enrollment or attendance at an eligible educational institution.”
Some schools specifically indicate application fees are NOT considered a qualified education expense. You might try to make the case that you have to pay the application fee to be admitted to the school and it is therefore related to enrollment. Even if that argument were allowed by the IRS, it could only apply to the one school you actually attend (and not other fees paid to other schools).
So, you probably shouldn’t try to use 529 plan money for college application fees.
My daughter is in the process of applying to colleges. Are application fees or cost of sending test scores to colleges qualified expenses?
IRS Publication 970, which covers this general subject of 529 plans, doesn’t specifically discuss college application fees and whether they are qualified education expenses. But the publication does cite “expenses related to enrollment or attendance at an eligible educational institution.”
Some schools specifically indicate application fees are NOT considered a qualified education expense. You might try to make the case that you have to pay the application fee to be admitted to the school and it is therefore related to enrollment. Even if that argument were allowed by the IRS, it could only apply to the one school you actually attend (and not other fees paid to other schools).
So, you probably shouldn’t try to use 529 plan money for college application fees or sending test scores.
When your testing for SAT’s or ACT’s can the cost be deducted from your 529 acct. They are required for college
While they may be required for some schools, they aren’t a qualified higher education expense. You could go to a community college or trade school without taking these tests.
My daughter enrolled and was accepted to an RN program at a local Junior College. In order to attend she was required to get a physical. Is the cost of the physical a qualified educational expense for 529 purposes as it was a required expense for attendance?
Yes, if she cannot enroll because she must have this physical, it can be a qualified expense.
My son is going to take a 3-week summer program in Europe that is offered by his college, and will be enrolled in 2 classes while there. I know the class tuitions can by covered by the 529, but what the cost of the program itself (which includes airfare, housing, and some food)? Thanks!
Many study abroad expenses can be covered with 529 plan money – including the tuition, room, board (food), required books, etc.
However, travel is not covered, and neither are any excursions your son takes while there.
The community college my daughter attends does not provide housing, so there is no housing COA. Does the rent she pays meet the qualifications for using 529 funds? What if I own the Townhome she is “renting”? IS there an amount that qualifies, and do I need a formal Rental document for this?
First, ask the financial aid office at the school – they’ve likely been asked this question many times, and have a housing COA that they may not share publicly.
If they really don’t (which would be very odd), then you can use whatever amount you think you could justify if the IRS asks. You only have to prove it should you be audited – so I would suggest keeping some records as to local rental prices, and documentation of what your daughter spent.
My son will be attending a County Technical College for diesel mechanics. They require the purchase of a lot of mechanics tools for the program. Would these be qualified expenses for his 529 savings plan?
You can only claim tools or equipment if you buy them from the school and if it’s required that you do so. The reason being that many tools can be used after the vocational training for employment.
My daughter needs a vehicle for college. Can I use 529 funds for a vehicle with out penalty?
No, a vehicle is not a qualified higher education expense.
Can a 529 account be used to buy a trumpet required for school? Will this affect taxes in any way?
Is it required for school? If the instrument is required for enrollment in school (i.e. you can’t attend if you don’t buy a trumpet), then yes. If it’s not required, then no.
Having it be a QHEE allows you to withdraw the money tax free from your 529 plan. You can always take money out of the 529 plan – but if it’s not a qualified expense, you’ll pay taxes and a penalty.
Our daughter lives in our apartment and attends a California community college. The estimated off campus cost of Living from the school is $11,556 our annual rent is over $45,000. Am I allowed to withdraw the $11,556 tax free? Am I also able to deduct our cost for internet at the apartment?
This is a tough topic, so I will try to make it clear. As always, speak to a tax professional with specific questions and/or concerns.
In short, yes. What you technically do is charge her rent, and she can use the money from the 529 plan to pay you the rent (and room and board), up to the limit for room and board expenses set by the school.
However, you could get into a situation about reporting the income for yourself as rental income. The caveat here is – receiving reimbursement for your expenses is not taxable income. Determine what your expenses for maintaining the room for rent would be (this can include home owners insurance, mortgage interest, utilities, etc.) and use that as your rental amount. Any more than that would be taxable income. Refer to IRS Publication 527 for more information. Then you could get information from the IRS website about current per diem rates for meals. Doing that would not require that you keep receipts for money you spent on food.
As for Internet, the same thing as above. You can’t charge the whole thing, since you likely use it as much as she does. However, you can figure out how much as a percentage she uses and then add that to the rent/utilities you charge.
My daughter is a high school senior but is graduating early this January. No decision yet on where to go, but she wants to use the upcoming semester, Jan 2018-June 2018, to take courses at a local college (accredited). Can these courses be covered by 529 funds, as she will clearly not be enrolled as a full time student at this local institution?
Yes, community college courses are qualified higher education expenses.
To be clear, it will just be a course or two while she works and gets ready for 4 year school in August, 2018. Want to make sure she can take a few courses/credits and not be penalized should we pay with 529 money.
Can we withdraw the full tuition plus room and board and books each year, even if our net price is lower due to need-based (non-governmental) aid? We are lucky enough to have grandparents that over-saved in 529s and we’d like to shift the money into a non-tax advantaged account for future use as part of a house down payment, or other such worthy cause. I know earnings withdrawn will be taxable at my kid’s rate, but would the penalty apply?
No, you can only withdraw the amount AFTER your aid – even if not governmental. You can’t double-dip.
My son paid his own tuition at a community college for 2 years, with the intention of transferring to a 4 year university in the future. He has since decided to not pursue a 4 year degree. Is it possible for him to be reimbursed for the tuition paid in previous years?
You have to take the withdraw in the same year that the qualified expenses were incurred. You can do it anytime in the same year, but it must be that year.
Thank you.
My son is taking concurrent college courses while a senior in high school. The classes are offered for free through his high school. Are technology expenses allowed as qualified higher education expenses if they are required for the concurrent class?
Yes, since they are being used for community college that counts.
My son is graduating and getting married in May 2018 and will most likely be filing jointly and claiming himself and his wife as a dependent. If that is the case, can I still use the 529 proceeds to pay for his 2018 college expenses if he is the beneficiary of my 529 plan? Are there any specifics regarding the distributions in this situation, such as payable directly to him?
Hi Robert,
Thanks for all the information you provided, it’s very helpful. My daughter is going to attend college from Fall 2018. We have some money put away in 529. She wants to fund part of her education cost by taking loans. We’d like to use the 529 funds for tuition and fees and may be use the money from the loan for room and board. Can we use Stafford loan money specifically for just room and board? We can probably fund her education but she wants to take some of the responsibility. Would we even qualify for a Stafford loan? Can you educate us a bit about this?
Thanks in advance for your help.
What’s going to happen is that your school will send you an invoice and you pay the balance. How you pay is up to you. You can take 529 plan money and pay, or she can apply for a loan and that money would get dispersed to the school.
When she accepts her loan, you can choose a lesser amount as well. For example, she could take a loan for just $2,000.
Thanks a lot Robert. Happy Holidays!
Robert,
Our son is a full-time student at an eligible school and we pay room and board directly to the school. Your page says that room and board are 529-qualified expenses if the student is attending college half-time or more and the room and board are paid directly to the college. But several other web sources say room and board are not qualified (even if paid directly to the college) unless the college requires they be paid as a condition of enrollment and attendance. The IRS (2016 Pub. 970, p.58) sets a rather confusing multipart test for whether room and board are qualified expenses. Can you clarify under what conditions room and board are considered qualifying expenses? Thanks.
Room and board qualifies if your child is attending half time or more.
You can use the lesser amount:
– What the Cost of Attendance of the school says
– What the actual cost says
My daughter is enrolled in high school, but takes ECE (Early College Experience) courses through our state university so is early college credit. We pay $160 per semester per course (one this year, and probably two or three in the next two years). Can her 529 cover the cost of these classes?
Yes, you can use 529 plan withdraws to cover the cost since it’s higher education (college).
A question about timing. Since withdrawals and expenses must be matched in the same year incurred, how do you handle a tuition bill received in late Dec that is due in early January? Is it considered “incurred” in Dec or Jan if paid directly to the qualified institution? Should funds be withdrawn in Dec or Jan?
While the IRS isn’t incredibly clear, most experts recommend using the cash-basis accounting principle for determining the year. So, if you pay the bill in January, you would withdraw the funds in January. If you pay the bill in December, you would withdraw in December. It’s all about when you paid it – not when you were billed.
Does it make sense to make contributions and withdrawals with the same time period just to avoid NY state taxes. Is there a timing issue with this ? Does the money have to be in the plan before expenses paid or do expenses and withdrawals just have to be in same tax year?
You can do it yes, but you’re not gaining much from doing so. What do you mean the money has to be in the plan before expenses paid? You can only withdraw from the account money that’s actually there. And yes, you can only withdraw funds the same year you pay the education expense.
I have 3 kids starting in the fall, but really haven’t been in a position to create a 529. If I contribute to the plan in NY state (up to 10000 deduction married) I can save $645 each year on my NY state taxes just by putting it in and taking it back out to pay for their college. Yes I will miss out on the gains in that time because I won’t be able to be aggressive. As far as the timing question, could I put in contributions after in the same year and take them out to pay for expenses earlier in the year, again just to for the tax gain
Dear Robert,
I’ve been reading your responses to people’s questions. You do an excellent job. Of course there is personal responsibility that needs to be taken. I just want to confirm two items.
My son is a Film major and Music minor at a UC. As a music minor he plays the french horn. This year, to keep up with his progress as a musician we bought a new horn. My son said that there are horns available for borrow, but the instruments available would not support his growth as a musician. I guess kind of like if you were training for any sport, and you had less than effective equipment. Some departments have more money than others to support their students skill growth.
As well as a film major, he can for short periods of time, rent a camera, but that limits significantly his ability to prepare his assignments, and practice his craft (develop, and practice the skills he is going to school to learn.)
Would either of these expenses, given they are his declared major and minor in school, be acceptable uses of 529 money?
Thank You in Advance,
Lisa Jo
Neither would be qualifying expenses. The camera rental fee paid to the school could potentially be a qualifying expense if it’s required for the course he’s taking.
With the upcoming changes under the new tax bill, I can begin to take distributions for private school (high school in my case) for my kids. We plan on using 529 distributions starting in 2018 for private (high school) school. We pay monthly with automatic withdrawl and now we plan to make automatic deposits to our 529 and then withdraw (almost a wash and just shifting the money flow through the 529.) My thought is we will get the full state tax deduction. Right now we are contributing $1k which is less than the allowable (?$5000 for Arkansas?) Depositing/withdrawing through the 529 would allow a full $5k deduction on our state tax.
Am I flawed in my logic with this approach?
Also, there is a non-refundable enrollment fee for all students. I assume this would be allowed?
All of this up to the $10k max, of course.
Arkansas has some funky plan rules, so you should consult an expert in your state. The limit for the deduction is $10k, but it appears you could get creative and do an out of state contribution followed by a rollover to save even more… once again, consult a tax professional.
Anyway, you can contribute and withdraw the same year to take your state deduction. And your enrollment fee should qualify.
Note – the IRS hasn’t published any rules for 2018 and non-higher education expenses. My guess is should, but it’s only a guess at this point. We likely won’t have much clarification until Summer 2018.
Thank you Robert.
I’ve read about the changes due to the new tax bill but didn’t realize it would be halfway through the year before rules are in place.
Thanks again and your article was very helpful. We knew we should contribute early in their childhood but didn’t have an idea of some of specifics as college is now upon us.
When my college student buys groceries as a qualified expense (up to the school’s posted allowable amount) will he have to save the receipts or can I provide the amount allowable without receipts?
I recommend you save the receipts to prove it was groceries and not other things – you never know if the IRS is going to question it.
Regarding the comment about when to pay versus when you are billed and both having to be in the same year … my son’s college will bill in late December with payment expected January 5. My 529 plan only sends a paper check directly to colleges; electronic funds transfer would happen if they disburse the funds to me or my son. I prefer to pay the school directly. So this means I’d have to ask for those funds on January 2 and essentially Fed Ex the payment to the school to arrive by 1/5? How do other people handle this? Doesn’t seem like much time. Also, what are your thoughts on who the best person is to receive the disbursed 529 funds (student, owner/parent or school)? I’ve heard a lot of opinions but it seems to me that having the funds go directly to the school would help minimize needing to hang onto receipts and such. Because a school wouldn’t be billing for non-qualified expenses. Right?
Are college planning costs a qualified expenses. We met with a firm that assists with the college planning process and financial aid and scholarship negotiations with colleges. They advised that this is a qualified 529 plan expense however I don’t see where this would fall under any of the major / eligible expenses that are listed.
I agree with you – these shouldn’t be considered qualified expenses since they are optional.
Will accepted expenditures for 529 Plans change with the new tax law? I read somewhere that K-12 expenses will now count. Does that only include tuition for private schools or could it also cover expenses like sports clubs?
The new law in 2018 allows for 529 plans to be used for elementary and secondary school expenses at public, private or religious institutions.
That means individuals can take up to $10,000 in distributions annually from their 529 plans to pay for private school tuition and books through 12th grade – in addition to using their account proceeds for college costs.
The IRS already defines qualified elementary and secondary school expenses (but we don’t know if that will change under the new law yet). These are expenses related to enrollment or attendance at an eligible elementary or secondary school. As shown in the following list, to be qualified, some of the expenses must be required or provided by the school. There are special rules for computer-related expenses.
The following expenses must be incurred by a designated beneficiary in connection with enrollment or attendance at an eligible elementary or secondary school.
The following expenses must be required or provided by an eligible elementary or secondary school in connection with attendance or enrollment at the school.
The purchase of computer technology, equipment, or Internet access and related services is a qualified elementary and secondary education expense if it is to be used by the beneficiary and the beneficiary’s family during any of the years the beneficiary is in elementary or secondary school. (This doesn’t include expenses for computer software designed for sports, games, or hobbies unless the software is predominantly educational in nature.)
My son is living off campus. Just confirming that room and board must be tracked separately. If the school says housing cost is $6500 and meals are $3500 totaling $10000, and we have $7000 in rent, but only $3000 in meals, can we add the two expenses together and claim $10000 room and board? Or will our qualified expenses be $6500 room and $3000 board, totaling $9500?
Secondly, when grocery shopping, does he have to separate food and non food items? IOW for sure the hamburger and buns qualify, but what about toilet paper and tooth paste? Also, are fast food and other restaurant expenses qualified under board?
– Thanks!
The school breaks them down separately, you must track them separately – and must use the lower of either the school COA or the real amount spent. So, it would be $9,500.
All food/dining counts – but yes, he should separate his food out from other expenses – especially things like booze if applicable.
Finally, remember – your only issue is if the IRS wants proof. So, keep accurate records as best as possible, but it’s not like you’re turning in these receipts each year.
my son had an offer for a great Job opportunity this semester and accepted it – thsu withdrawing from his class load- if he still takes one online class to keep enrolled, can we still use his 529 for his expenses? Like his rent- ( which is cheaper than r/b) and of course pay for the online class. he will be enrolling again in the Spring for his Fall semester which will be his last one and he graduates.
As long as he is technically enrolled at least half time, you can use the 529 plan money to pay for living expenses such as rent.
If his online class isn’t considered at least half time enrollment, then no.
Looks like we got our answer and it was – no , we can’t use it this semester. Need to have at least 6 credit hours and that would not be possible….but once he begins his final semester in the fall ,we can. In the meantime, thankfully his job pays well- he just won’t be able to save as much.
My son is a full time student at Wabash College and this past summer he completed Dartmouth College’s Bridge program. We didn’t and won’t receive a 1098-T from Dartmouth but is the amount we sent to Dartmouth from the 529 plan an eligible expense ($10,500).
You need to provide more information on the expense. If that was the tuition for a college credit program, then yes, it would qualify. If it was other expenses, it might not.
Hello,
Can I use MOST 529 funds to pay graduation related expenses?
What graduation related expenses specifically?
My daughter is studying abroad this summer with her US university. She will be traveling around Europe visiting different cities, studying European art, architecture, and composers while traveling. As part of their studies, they will be visiting museums and historical buildings. The classes are taught by her US university’s professors and they travel together. She will be a full-time student.
The program has three separate fees. (I know her airfare to Europe is not a qualified expense and her tuition is a qualified expense.) The third expense includes housing, meals, museum admissions, city-to-city transportation, and heath insurance. These costs are not itemized, they are lumped together in one “Program Fee” paid directly to her US university, and required for her attendance in this program.
While travel costs are not typically qualified, is it different in this case in which the city-to-city travel is part of the actual classes? (Flights to / from Europe are billed separately.) Of course the housing and meals would be qualified, but how about when they are lumped in with the city-to-city travel and insurance? Would I be able to use 529 funds for this mandatory Program Fee?
Thank you for any insight.
I think you would be safe as it’s a required program fee, and it includes many mandatory items like housing, meals, etc. At the end of the day, your argument would be to justify it with the IRS if they question you about it (which is probably unlikely). It could be worthwhile to speak to an accountant to be safe.
Thank you so much for your reply!
This blog is very helpful. Thank you.
Can we use 529 funds to cover GRE Prep material?
Also, after reading the blog, is it safe to say we can not use 529 funds to apply to grad schools?
You are correct. You cannot use 529 funds to cover GRE Prep Material because the GRE isn’t a higher education expense. By it’s nature test prep (and the test itself) is to get into college – not an actual higher education expense.
And you can’t use the funds to apply either – because once again, you’re not using that money towards you’re degree.
My son is a full-time student at a California Community College, and a graphing calculator is required for his Calculus class. I bought him one. Is that a qualified educational expense for which I can repay myself from his section 529 account?
If it was on the required list for the class, then it qualifies.
Are you able to use 529 plan money for sorority fees ?
No, sorority fees are not a qualifying higher education expense.
Thank You!
Thank you so much for all of this helpful information!
My daughter will be attending a 4-week study abroad program this summer through her college so the fees will be paid directly to her college. I know the tuition, room and board would normally qualify but summer expenses are not including in the college’s COA – it only includes the regular school year Sept – June. Can we still use 529 money for her summer program? She is getting 2 classes worth of units out of it too. TIA
Yes, just keep your receipts from it. Also, sometimes if you ask the financial aid office, they will have it.
Hi Robert… thanks for the blog, great info.
Our granddaughter is still in the ‘college due diligence process’ and hasn’t yet committed to a school. Are the expenses incurred for travel, food and lodging to such schools eligible for 529 withdrawal whether she accepts the school or not?
No, applying to schools and/or prospecting schools aren’t qualified higher education expenses.
Hi, Thanks for the great article. I have a question
How does IRS really know we spent is qualified or not? Lets say I withdraw money as “qualified distribution” to my bank account but I used part of it for transportation (which is unqualified). Do we have to submit proof of expenses?
I recently opened an account on my daughters 1st birthday.
You don’t have to submit any proof of expenses unless you’re audited. Like anything – there is a paper trail the IRS can quickly follow.
When you pull money out of a 529 plan, you’ll be issued a 1099-Q that reports how much you withdrew.
Your school will issue you (and the IRS) a 1099-T, which shows how much was paid to the school for tuition, etc.
If the numbers don’t jive according to the IRS’s data about cost of attendance, etc. you’ll be flagged for an audit. During that audit, you’d have to provide proof that the expenses were qualified. If you can’t show proof, you’ll be subject to ordinary income tax and penalties on the excess withdrawal amount.
So, bottom line, save your proof in a file and hold onto it with your tax return.
Hi,
Can you draw money from a 529 plan for an enrollment deposit and housing deposit for college starting in September ?
Thanks!
My grandson is attending a Community College in the fall. We are paying his tuition, books and the accepted expenses. Since there is no housing can we use the COA to address the room and board expense even though he will be living at his father’s house?
Yes, your father can figure out his room and board expenses and use that money. However, documentation and proof is key.
Thank you for the information. To be clear; I can use the 529 funds for my grandson’s “room and board” even though he will live at his father’s house. (as long as the cost does not exceed the COA?} Does the fact that the Community College he will be attending offers no housing?
Sorry, no you cannot use it. You can use the funds to effectively pay his father rent since he’s living there. It should cover things like room and board would normally cover – utilities, food, etc.
Hi Richard,
Thank you for answering everyone’s questions! I am confused by UCBerkeley’s posted Cost of Attendance for 2018/2019: https://financialaid.berkeley.edu/cost-attendance
There is a line item for Residence Hall Room & Board, and another for “Food” down by “Other Estimated Costs.” Is our total 529K allotment for Room & Board both these figures combined? Or should we only go by the top number?
In addition, the lowest posted rate for the Residence Halls with the most basic meal plan exceeds the cost listed on the COA: https://housing.berkeley.edu/rates
With only 12 meals per week provided, I know my son will need to supplement his meals elsewhere (restaurants & grocery stores). Can you clarify what our 529K limit would be for food in this case?
Also, what happens if the books/supplies cost exceed what is listed? We’d prefer to err on the side of caution rather than be audited! Thank you!
Gret question.
If you keep your receipts and can document everything, you can withdraw costs in excess of the COA. The Internal Revenue Code also allows for you to claim the full cost of room and board if the student is living in housing that is owned and operated by the college and the actual cost of the housing exceeds the amount in the allowance in the college’s official student budget.
So, withdraw what it costs for room and board and the meal plan, document it with your receipts, and you should be fine.
As for books and supplies, they must be required by the class. Once again, keep the syllabus for the class as proof (it must say required).
American student attending a university in Quebec must apply for a CAQ [Quebec acceptance certificate] and a Canadian study permit. Are the associated fees considered qualified expenses from a 529 plan?
No, fees uniquely associated with travel and study abroad (such as a permit, visa, etc) are not considered eligible expenses.
My son is attending a technical school which requires him to wear uniforms and purchase tools in association with his summer interniship. Are these covered?
This is a tricky one because you said “internship”, not school. An internship is work, sprinkled with a bit of education.
First question is, does he receive college credit for the internship? If yes, then potentially. If no, it’s just work and you can’t use any 529 plan money.
Second, if the internship is for credit, then maybe. Now, is the uniform required to receive credit? Will the expense be paid to the school? If yes to those, I would say yes you could use a 529 plan and show it’s required. If not, then probably not.
For tools, it’s similar. Are the tools specific tools that are paid to the school? Or, are they tools he will buy and can use for his life post-graduate in his field. In 99% of cases, it’s the later, and they won’t be qualified expenses.
You are doing an excellent job with answering everyone’s question! Thank you for your resource. Our son has been accepted into an Aeronautics program and will be incurring Aviation fees to fly every semester. He will be required to get a private pilots license either in his first semester or have it transferred in with him. We have found that he can get his PPL locally for $8-10K or get it while he is in school for $14K. The license will also allow him to transfer 12 credits into school which would save us both time and money. Can we use the 529 to pay for the PPL locally?
A 529 plan can only be used for qualified educational expenses. If the license is required by his school (and you have documents to prove it), then yes. Part 2 of this though is local vs. paying through the school. Another aspect of a 529 plan is it can be used for vocational training, which getting a pilot license basically is. However, this can only be done through accredited schools. If you find a flight school that is accredited locally, then yes, I would go that route. Otherwise, to be safe, I would go through the school to pay for it.
Hello.
Thank you for being active on this forum.
Could you help me with understanding my 529 situation?
I was recently gifted a 529 and I plan on using that to pay for the completion of my degree in the Fall.
I will be enrolled in at least 6 units under the schools reduced tuition program.
I know that the money can be used for tuition, but could I also use it for off campus housing even though I am technically not enrolled as a part time student, but as a student under a tuition reduction program?
Thank you for your help.
No, you must technically be enrolled at least half time to use money for housing expenses.
I saved in a 529 plan and put both of my daughters through college to get their Bachelors degrees and there is money left over. One daughter would like to take some additional lower division classes to prepare her for a new job opportunity. Would those classes still be reimbursable on a tax free basis? Thank you!
Yes, if the classes are paid to a qualifying higher education institution, they qualify.
Also, remember, the remaining 529 plan money doesn’t have to be spent. You could theoretically keep the money and use it for grandchildren years from now. Check this out: https://thecollegeinvestor.com/18214/using-529-uses-benefits/