Opening a 529 plan to save for your child’s college expenses can be a great way to build savings while reaping tax benefits.
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 (see below for using a 529 plan for elementary 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.
Using A 529 Plan For Private Elementary Or High School
Starting in 2018, you are now eligible to use 529 plan expenses for private elementary through high school tuition. Notice tuition - it's only eligible for tuition.
You can withdraw up to $10,000 per year to pay for private school tuition.
There are a lot of nuances around this, so check out our full article on using a 529 plan to pay for private elementary school here.
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.
If you're curious to how you stack up with college savings, check out our How Much Should You Have In A 529 Plan By Age.
Make your college savings work for you!
Rhonda Levitt says
Do fees for taking GRE exams qualify as reimbursable expenses for 529 holders?
Robert Farrington says
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.
Amanda says
What about tutors or tutoring services? Do those qualify?
Robert Farrington says
No, tutoring is not an eligible expense for higher education.
Mark W. says
Are there any special restrictions on costs incurred for higher education outside the U.S.?
Robert Farrington says
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
Mark W. says
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.)
Cyndi D'Meo says
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?
Robert Farrington says
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?
Bob T. says
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?
Robert Farrington says
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.
Kim says
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
Robert Farrington says
Sadly, parking fees are not qualified higher education expenses. It’s one of the reasons why the college will bill them separately.
Kim says
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.
Robert Farrington says
Yes, that would qualify since it was required for attendance.
John G says
How about what you pay to furnish their dorm room at the start of freshman year? Is that a qualified expense?
Robert Farrington says
Negative – all dorm room furnishings are considered personal items and are NOT qualified higher education expenses.
John G says
Well darn it. Thank you for your prompt response. Very good, helpful article!
Christine Gazzillo says
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?
Robert Farrington says
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.
Patricia Konopatzki says
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?
Robert Farrington says
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.
David says
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.
Robert Farrington says
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.
Jill McGavin says
Are restaurant meals potentially qualified expenses?
Robert Farrington says
Yes, as long as they don’t exceed the COA as provided by the school.
Jayne says
Are the costs for mandatory new student conferences approved expenses? What about housing application fees?
Robert Farrington says
The cost of orientation is approved. Transportation to/from is not. Housing application fees can be since their mandatory to get on campus housing.
Tina Wagner says
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.
Robert Farrington says
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.
Aaron says
If it were required for graduation through the University wouldn’t this qualify.
All required fees for curriculum, no?
Robert Farrington says
What do you mean? Anything as a course requirement qualifies.
beckie belote says
what about fees you have to pay to apply to colleges?
Robert Farrington says
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.
Jim Schlembach says
My daughter is in the process of applying to colleges. Are application fees or cost of sending test scores to colleges qualified expenses?
Robert Farrington says
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.
Deborah says
When your testing for SAT’s or ACT’s can the cost be deducted from your 529 acct. They are required for college
Robert Farrington says
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.
Eric says
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?
Robert Farrington says
Yes, if she cannot enroll because she must have this physical, it can be a qualified expense.
Tom Lynch says
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!
Robert Farrington says
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.
Rich Barone says
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?
Robert Farrington says
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.
Don Krebs says
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?
Robert Farrington says
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.
Tim says
My daughter needs a vehicle for college. Can I use 529 funds for a vehicle with out penalty?
Robert Farrington says
No, a vehicle is not a qualified higher education expense.
Fran says
Can a 529 account be used to buy a trumpet required for school? Will this affect taxes in any way?
Robert Farrington says
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.
Stephen says
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?
Robert Farrington says
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.
Mike Font says
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?
Robert Farrington says
Yes, community college courses are qualified higher education expenses.
Mike Font says
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.
Charlotte Mitchell says
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?
Robert Farrington says
No, you can only withdraw the amount AFTER your aid – even if not governmental. You can’t double-dip.
L. Matter says
Can my daughter get 529 reimbursement for her out-of-pocket expense for books/materials if she’s already received a check from the school for the excess aid she received? Her Pell Grant was more than what was needed for tuition and fees, but she bought books with her own money before the check from the school arrived. Does that make sense?
Robert Farrington says
She technically used her Pell Grant – where did that money go if it wasn’t to reimburse her fees. If there was still more spent (and it was less than the COA), then you can use 529 plan money.
So, for example:
Pell Grant Excess – $500
Books and Qualifying Fees – $600
She could potentially use $100 from her 529 plan to cover the difference in costs.
Angela says
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?
Robert Farrington says
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.
Angela says
Thank you.
Steve Hardin says
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?
Robert Farrington says
Yes, since they are being used for community college that counts.
David Fox says
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?
Prasad Koneru says
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.
Robert Farrington says
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.
Prasad Koneru says
Thanks a lot Robert. Happy Holidays!
David Ernst says
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.
Robert Farrington says
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
CM 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?
Robert Farrington says
Yes, you can use 529 plan withdraws to cover the cost since it’s higher education (college).
KL says
My son will be on campus all day on Mondays and Wednesdays taking ECE (College Credit Plus where we are) courses. Would the Parking Pass and a Meal Plan be covered expenses? Thanks.
Robert Farrington says
Parking pass no. Meal plan potentially – does the school have a cost of attendance?
CC says
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?
Robert Farrington says
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.
Bill Balisteri says
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?
Robert Farrington says
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.
Bill Balisteri says
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
Lisa Jo Cohen says
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
Robert Farrington says
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.
Alibaster McGillicutty says
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.
Robert Farrington says
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.
Alibaster McGillicutty says
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.
Maggie M says
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?
Robert Farrington says
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.
JJ says
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?
VanT says
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.
Robert Farrington says
I agree with you – these shouldn’t be considered qualified expenses since they are optional.
Connie says
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?
Robert Farrington says
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.)
ScottP says
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!
Robert Farrington says
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.
Wendy Miller says
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.
Robert Farrington says
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.
Wendy Miller says
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.
Madonna says
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).
Robert Farrington says
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.
Kati says
Hello,
Can I use MOST 529 funds to pay graduation related expenses?
Robert Farrington says
What graduation related expenses specifically?
Lisa says
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.
Robert Farrington says
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.
Lisa says
Thank you so much for your reply!
Heather says
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?
Robert Farrington says
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.
Brian says
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?
Robert Farrington says
If it was on the required list for the class, then it qualifies.
Rachel says
Are you able to use 529 plan money for sorority fees ?
Robert Farrington says
No, sorority fees are not a qualifying higher education expense.
Rachel says
Thank You!
Janet C. says
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
Robert Farrington says
Yes, just keep your receipts from it. Also, sometimes if you ask the financial aid office, they will have it.
Al Kitchel says
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?
Robert Farrington says
No, applying to schools and/or prospecting schools aren’t qualified higher education expenses.
Venky says
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.
Robert Farrington says
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.
Rachel says
Hi,
Can you draw money from a 529 plan for an enrollment deposit and housing deposit for college starting in September ?
Thanks!
Richard says
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?
Robert Farrington says
Yes, your father can figure out his room and board expenses and use that money. However, documentation and proof is key.
Richard says
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?
Robert Farrington says
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.
Ruby says
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!
Robert Farrington says
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).
A. Kohn says
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?
Robert Farrington says
No, fees uniquely associated with travel and study abroad (such as a permit, visa, etc) are not considered eligible expenses.
Joyce C says
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?
Robert Farrington says
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.
Joyce C says
Robert,
The tools are purchased through a school account from a tool vendor. While needed for the internship they are a second year school requirement. The uniforms are purchased from the school and are a requirement for attendance.
Stephanie G. says
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?
Robert Farrington says
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.
Micheal A. says
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.
Robert Farrington says
No, you must technically be enrolled at least half time to use money for housing expenses.
Nancy says
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!
Robert Farrington says
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: http://growth360tci.wpengine.com/18214/using-529-uses-benefits/
Joel Petterle says
My son attends college full time but not during summer semester. He lives off campus in a house with the local standard of a 1 year lease for the house. He will live there intermittently through the summer. Can I use 529 money for the monthly summer lease cost. How about summer food costs? Thanks
Robert Farrington says
You must be attending school at least half time to qualify for any expenses. If he’s doing at least half time, then yes, the rent and food up to the COA are fine.
Jason says
Hi Robert:
Great article and the blog responses are really helpful. Are placement tests (ie English, Math, Language, etc…) for the college you are attending covered?
Also, for high school, it looks like tutorings costs are now covered. Is that for all high schools whether public or private (as long as you dont exceed the 10K limit)?
Thank You!
Robert Farrington says
Hi Jason,
Placement and admission tests are typically not considered qualifying unless they are for the school you’re going to AND they are required. If you’re simply taking them to get standing or similar, they aren’t likely required, but recommended.
The high school one is interesting. Private school tuition is covered, but not other expenses like tutoring.
Angie says
I took a one time, non qualified distribution, from a state sponsored 529 plan in 2016. I recently received a notice from the IRS that alerted me that turbo tax did not correctly count the 5K earnings of the 529 as taxable income b/c the type of program was accidentally marked on my return as “private”, when it should have been marked “state” fund. This accounts for a change in refund of a little over 2300 that I owe back. It doesn’t make sense that 5700 earnings could account for 2300 in taxes. Does that make sense to you? Moreover, they are negating my child and dependent care expenses, per IRS report, but when turbo tax recalculates with all boxes checked correctly, it states that it stays the same (20% of 3K). Advice on rebuttal to the IRS? Thank you for your time.
Robert Farrington says
This is a complex tax question and it’s best served by an accountant. I highly suggest you contact one if you want to contest this with the IRS.
As for how the taxability works, you pay income taxes and a penalty on any earnings you withdraw. Any withdraw is treated pro-rata (meaning equal parts earnings and principal).
So, let’s say you had $20,000 in principal, $5,000 in gains, for a total account balance of $25,000. If you withdraw $5,000 – that would be treated as $4,000 in principal and $1,000 in gains.
You would face a tax burden on that $1,000 – it would be your ordinary income tax rate plus a 10% penalty. So, if you were in the 25% tax bracket, you would actually pay 35% on the withdraw. So your tax bill on this withdraw would be $350.
As for those tax credits, could the withdraw push your income high enough that you reduce your credit? With the addition of this 529 plan withdraw, your taxable income could be much higher, resulting in a recalculation of other credits and deductions you took on your return. This is why speaking to an accountant could be worthwhile.
Ruth K. says
Hello, I am interested in doing coursework to become a doula (someone who assists a woman in birth and post-partum). There are several options/schools/agencies who certify students in this field. How do I know if this type of schooling would qualify as a 529 expense and how would I pay for the fees from the account if the agency only accepts a credit card as online payment? Thank you.
Robert Farrington says
The school is eligible if it’s on this list: https://ifap.ed.gov/ifap/fedSchoolCodeList.jsp
As for payment, you would pay the school, then withdraw the money to yourself. Just keep records.
Ruth K. says
thank you for this comprehensive list and the very timely reply!
Jaime says
Can my daughter return a computer she bought with 529 funds in her senior year but never used?
Robert Farrington says
Yes, but then it would no longer be considered a qualified expense.
Richard says
Can I withdraw funds from our 529 account and pay the taxes without penalty? As it turns out, we have WAY more than we need to get our grandson through college. (New York)
Robert Farrington says
You can always withdraw contributions without taxes and penalties. However, all withdrawals are pro-rate. So, let’s say the account is 50% principal and 50% gains. When you withdraw, 50% will be taxable as gains. You don’t get a choice in that.
Remember, you can always reassign the account to someone else – even into the future.
Richard says
With a tax bracket of 17% – am I correct in calculating 27% as the amount I would owe? (ie; $20,000 = $5,400) – A second question would ask about NYS tax.
Robert Farrington says
Yes – your tax rate, plus 10% and it would also be subject to state taxes at whatever your state tax rate is. Probably another 6.5% or so.
Richard says
Given the 50/50 equation though, wouldn’t the tax rate and the 10% penalty be on 10,000 rather than the full 20,000.? I have already paid taxes on the principle over the last 18 years. Wouldn’t that tax be on the interest that it accrued? (I know state is different as it was a deduction all along.)
Robert Farrington says
Yes, the taxes and penalties would only apply to the $10k (the 50% that is considered gains).
Richard says
Can PRINCIPLE be withdrawn and “not” subjected to tax or penalty?
Robert Farrington says
Principle is not subject to tax and penalties. However, all withdrawals are pro-rata. You can’t simply withdraw principle without taking gains out as well.
Richard says
If I send (via 529) a portion of a 529 account to its beneficiary it is my understanding that the taxes and penalties would be paid by him. (if the funds are not used for qualifying uses). Am I correct?
Robert Farrington says
The owner of the account pays the taxes and penalties, not the beneficiary. So, if you’re the owner, you pay it.
If you intended the 529 plan to be a gift, and the child never went to college, you should consider transferring ownership of the 529 plan to him. Then, if he makes non-qualified withdrawals, he would be subject to the taxes and penalty.
Ken says
Would the transfer of ownership become a gift, with related tax consequences if the amount exceeds the gift tax allowance?
Robert Farrington says
As of today, there are no tax issues with transferring ownership of a 529 plan. However, there have been proposed rule changes, so it could be something that happens in the future.
David Kinney says
My daughter is attending a charter / private high school here in Indianapolis – uniforms are mandatory – can those be paid for via our 529 plan ?
David
Robert Farrington says
For elementary school, you can only use the funds for tuition – nothing else. Check out our full guide on using a 529 plan for elementary or high school.
Will Jenkins says
My son’s employer reimburses him for a portion of his tuition and books. Does this reduce the amount that can be reimbursed from his 529 account? For instance, if his tuition, room and board was $10,000 for one semester, and I pay that directly to the school, subsequently his employer reimburses him for $3000, how much can be withdrawn from his 529? Also, suppose he received a scholarship instead of an employer reimbursement, how much could be withdrawn from the 529, in that case?
Robert Farrington says
You cannot double-dip. So, if he receives tuition reimbursement and/or a scholarship, you cannot also withdraw from a 529 plan.
So, in your example, if your son’s school cost $10k, but he received $3k from tuition reimbursement, the max qualifying 529 withdrawal would be $7k. If he had other scholarships, it would further reduce that amount.
Will Jenkins says
I read another site that said:
The Internal Revenue Service grants certain exceptions to the 10 percent additional tax on earnings you withdraw from a QTP that don’t go toward qualified education expenses. These include the death or disability of the beneficiary. They also include cases where the beneficiary receives a tax-free scholarship, veteran’s assistance, employer assistance or other tax-free educational assistance.
Is this correct? Is this different than double dipping?
Robert Farrington says
That is correct but you still pay ordinary income taxes on the withdrawal (it’s not tax free like it would be if it was qualifying), you just don’t pay the added penalty. So, you save 10%, but you’re probably still going to pay roughly 30% (Federal and state combo) in taxes on that overlapping amount.
Will Jenkins says
OK, let me see if I can get this right. My child’s college bill is $10k, he receives $2k from his Grandfather’s 529, he receives $1k from a scholarship, and $3k from employer reimbursement. I pay the full amount due, $10k, then can only withdraw $4k from my 529, but if I decide to make an additional non-qualified distribution from my 529 of $4k (scholarship and employer reimbursement), I do not have to pay the additional 10% tax penalty I would normally pay for a non-qualified distribution, but still have to pay federal and state taxes on the amount of earnings associated with the $4k withdrawal. Is this correct? Is there anything I missed? Is there anything else that could be done? Does the non-qualified distribution have to be made in the same year the employer reimbursement was made? I’m concerned that I have over-saved in his 529 and will have money stuck in it after he graduates, so I would like to pull out everything I can, as cheaply as possible. Suggestions? Thanks, in advance!
Robert Farrington says
You have it right. Just remember all withdrawals from a 529 are pro-rata. This means, let’s say you have $16k in a 529 plan, and your contributions were $4k, and the growth is $12k. All withdrawals will be considered 75% earnings, 25% principle. So, in your $4k example, your taxes would be on $3k.
My best advice for potential over contributions is always wait and see. You never know what happens in the future. You can:
– Change beneficiaries (sibling, niece, etc.)
– Your child might go back to school in the future
– You could change beneficiary to your self and go back to school
– You could let it be and have it for grandchildren
I would only pull it out taxable if you really have no other options left.
David says
If the person is living off campus in a apartment with a spouse and child, will it cover it?
Robert Farrington says
If they are a full time student, you can use up to the COA for off campus housing.
Mark Wamser says
Can 529 Money be used for Wilderness Therapy Program for struggling teens? If so, is there is limit of how much can be withdrawn annually?
Robert Farrington says
No, 529 plan money can only be used for tuition at a public, private, or religious school. Extracurricular programs do not count. Read our full guide here.
Grant Belden says
My daughter is in grad school pursuing a degree to become a school teacher. She will be student teaching and will need to buy supplies for student teaching (like books geared toward the school aged children). Can 529 funds be used to cover cost of these books?
Robert Farrington says
If these books and supplies are required for her course, they count (they would be listed as required on the course syllabus). If they are just books she wants to read to schoolchildren, then no.
Lucy Haessly says
My son is going to major in music education in college. Can the 529 funds go toward paying for an instrument?
Robert Farrington says
This is a tough one because that’s usually considered a tool. If he’s going to need the instrument as a requirement for the class (on the syllabus), and he buys it through the school, then yes. However, it’s still risky if you’re audited because it’s a tool he will use forever.
Tom V says
My son will be attending the business school at a state university (state of Indiana). His “Business Presentations” class requires him to wear a business suit. Can we use 529 funds for that suit?
Robert Farrington says
Is it in the syllabus as a course requirement? Is he buying the suit through the school? Chances are no. It’s very similar to the issue of tools for vocational school.
Amy B. Brownell says
The room/board and tuition is easily understood. Also required course fees and books/software if for the course. What is less so are the mandatory (nonnegotiable fees) that you have no choice but to pay. IU (Indiana U) has mandatory activity fee (non course related but mandatory), repair and rehab of campus (again, not course related), health, student technology and transportation. How about at least getting the technology fee (needed for online access to all things school and/or related) covered?
Robert Farrington says
Mandatory fees such as administration, lab and technology fees required by the school, are an eligible expense.
Other fees, like club and activity fees, including fraternity and sorority membership dues are not eligible. Health insurance and transportation are not eligible.
Anne R Hoagland says
Along the questions above…the Health Service Fee is $73.00 for my son. I don’t think that this is insurance but described by the website: “HEALTH SERVICE FEE. This fee of $4.91 per semester credit hour is used to cover costs of the Student Health Center.”
I also have a Student Center Fee, a Recreational Sports Fee (“RECREATIONAL SPORTS FEE. This fee of $100 per regular semester and $50 per summer semester is used to fund debt service requirements and operational costs of the facility.”), and a Intercollegiate Athletics (“INTERCOLLEGIATE ATHLETICS FEE. This fee of $22 per semester credit hour, with a $286 maximum per semester, is used to support intercollegiate athletics at Tarleton State University”.)
The Student Bill has a section for Tuition and a section for University Fees. All off those extra fees are billed at his account activity. If I don’t pay, then, he can’t attend the school.
Robert Farrington says
Yes, all of those extra fees are not qualifying for 529 plan withdrawals. Health service fees are considered medical/insurance and not education. The recreational fees and NCAA fees don’t count either – sports.
Anne R Hoagland says
Thanks for the quick response. That’s a real bummer, with 3 children in college, those extra fees really add up. Since these fees are required by the university, I wish that we could use the 529.
I enjoyed your video above. Thanks for putting it out there.
Randy says
I’ve seen different interpretations on this question of whether mandatory fees required by the university for attendance are QEEs, based on the literal language in the Internal Rev Code (see 26 U.S. Code § 529 Section e3). Is your opinion on mandatory fees for things like Health Service Fee, Student Center Fee, etc. (per Anne Hoagland’s question above) based on some specific IRS guidance provided outside of the Code section itself? Or is your opinion based on your interpretation of the Code language itself? Read literally, these expenses would be considered QEEs, as they are “fees required for the enrollment or attendance of a designated beneficiary at an eligible educational institution.”
Thanks so much!
Robert Farrington says
Everything I publish here is my opinion! Nothing should be taken as fact, situations vary, nothing is personal advice, and I’ve learned that in almost every internet comment, the full picture is never painted. With that being said…
In Publication 970, the IRS says that certain fees may be counted, along with tuition, as qualified higher education expenses provided those fees are payable to the institution as a condition of enrollment. The most common example is a student activity fee, billed separately from tuition, but required of all students and of which no portion covers personal expenses.
Publication 970 specifically states that qualified education expenses do not include amounts paid for insurance or medical expenses, including student health services fees.
My opinion is that the other fees she specified (Student Recenter, Rec Center, NCAA fee) are also not qualified as they would fall under the personal expenses disqualifier as these fees typically fund programs that are servicing the school’s debt for something not academically related. The IRS has this in Publication 970 that includes: Qualified education expenses generally don’t include expenses that relate to any course of instruction or other education that involves sports, games, or hobbies, or any noncredit course. These types of fees fall under that in my opinion.
The IRS then goes on and states some eligible educational institutions combine all of their fees for an academic period into one amount. If you don’t receive or don’t have access to an allocation showing how much you paid for qualified education expenses and how much you paid for personal expenses, contact the institution. This tells me they are specifically breaking out these “other fees” as personal expenses, even though they may be mandatory.
David Kinney says
My daughter will be on an athletic scholarship staring Fall 2018. Because we started her 529 plan before we knew she would get the scholarship, what can we do with the funds that are in the plan seeing as though we won’t need to used them ? I noticed as part of the fall semester tuition billing, there was a line item for meal plan – $ 1,800 – can I use $ 1,800 of the money in the plan for something entirely different (non-qualified) due to the fact that food is being covered by the scholarship. ?
Robert Farrington says
You can withdraw up to the scholarship amount penalty free (not tax free) for non qualified withdrawals. Not a bad deal – you basically got tax deferred growth instead of tax free.
Lynn says
If my son attended college earlier this year, am I still allowed to open and contribute and then withdraw funds to cover expenses already paid in order to claim the state tax deduction.
Thanks
Robert Farrington says
You can contribute and withdraw funds the same year – just make sure the tuition was billed and paid this year.
Lynn says
Great! Thanks for the quick answer.
Mel Naanep says
My grandson has been accepted and enrolled at Georgetown University graduate school and has to attend a mandatory orientation in Washington, D.C. What part if his orientation expenses are covered by his 529 account?
Robert Farrington says
What expenses does he have? A mandatory orientation fee would be allowed, but not much else I can think of.
Deborah Hinson says
Our daughter has been has received a generous but not full athletic scholarship, she has been told by the coach that she must purchase some very specific shoes for practice and game use. She also needs to purchase protective equipment (ankle braces-knee brace) for use in practice and matches. The coach requested specific guidelines for color and style. Also the coach ordered knee pads and players pay to the coach/program for these. Would these costs be deemed eligible expenses since she cannot play without them?
Robert Farrington says
No, sports equipment would not be eligible. However, remember you can withdraw the money from the 529 plan without a penalty (you still pay taxes) up to the scholarship amount. It’s not a great option, but not bad if you need to.
Tovey B. says
First, tanks very much for this Q/A. Extremely valuable.
Question about funding “board” expenses: My daughter has chosen student housing that includes a kitchen. As a result, she would like to forgo choosing one of the standard on-campus meal plan options in favor of doing her own grocery shopping and in-dorm meal preparation. My understanding is that I can fund the cost of this approach from her 529 plan, but only up to the amount that matches what the cost would be for a standard on-campus meal plan. However, her school has a number of different meal-plan options, leaving me unsure which to use for my 529 withdrawal calculations. Can I pick to most inclusive meal plan as my basis?
Robert Farrington says
You don’t go by the cost of the meal plans – you need to go to the Financial Aid Office’s website (or in person/email) and get the cost of attendance (COA). The cost of meals will be listed there. That’s the number that you use.
If you buy the meal plan directly from the school, it will all be a qualified expense regardless of what the COA says. However, if you choose to not use the school’s meal plan options, then you have to default to the COA as the max allowed.
Randy says
This is terrific info–thanks so much.
Our daughter received a $2,500 academic scholarship this calendar year. If we want to withdraw this amount as a non-qualified distribution but avoid the 10% penalty, must we make the distribution this calendar year? Our preference would be to keep that amount in the account to potentially be used fully tax-free for future qualifying expenses, but there’s a fair chance that her future QEEs will total less than our current 529 balance, leaving us with a remaining balance to be distributed at the end. So, I’m wondering if we don’t take academic scholarship distributions in the year the scholarships are applied, do we lose the ability to avoid the 10% penalty?
Robert Farrington says
Yes, you would have to withdraw it the same calendar year as you were billed/paid for the tuition that included that scholarship.
Paul H says
Thank you for this excellent blog. Can qualifying 529 distributions paid to the beneficiary/student’s bank account (who then pays tuition and R&B), count towards them providing their own support? I’ve read that $$ paid for tuition/rent from their UGMA counts so seems like the 529 $$ should to. I don’t get any value from her dependent exemption or the Opp’y credit on my return so its better for her to claim her own PE and take the credit (which I believe requires her to provide > 50% of her own support which she easily would when counting the tuition and R&B she pays using the 529 $$). If the rules are unclear as re: the 529 $$, I’ll take the risk as it feels like a reasonable position, but I would like to know if there’s something I haven’t found that squarely says this isn’t allowed?
Robert Farrington says
It sounds like you’re asking if 529 plan withdrawals can negatively impact the Expected Family Contribution (EFC) on the FAFSA, which could hurt changes for future financial aid?
If this is your question, with a parent- or student-owned 529 plan, the 529 withdrawals used to pay for college will not be reported on the FAFSA.
Or, are you simply asking for tax purposes should she claim herself and you no longer claim her as a dependent? This is a question for tax professionals and you should have your accountant look at this question, run the numbers, see if you can do it, and if it makes the most sense.
Randy says
Thanks, Robert. This is meant to be a reply to your answer posted at 9:18pm on Aug 14, 2018, but there is no reply button option in that particular thread.
I’ve reviewed IRS Pub 970 and, unless I’m missing something, I don’t see any limitation on inclusion of fees required for enrollment or attendance for purposes of determining QEE under a QTP. I do see the reference to student activity fees on Pg. 13 of Ch. 2, but this is under a discussion of QEE that is qualified as “for purposes of the American opportunity credit.” In the glossary section on Pg. 4, the IRS says, “Even though the same term, such as qualified education expenses, is used to label a basic component of many of the education benefits, the same expenses aren’t necessarily allowed for each benefit.” It then directs the reader to the full Glossary starting on Pg. 82, where QEE is defined for the different programs (with an important direction to see the pertinent chapter–e.g.. Ch. 8 for QTPs–for specific items). Here, for example, the reference to student activity fees is included under the American Opportunity Credit and the LifeTime Learning Credit sections but not under the QTP (or other programs) section. To me, this supports the view that one should look only to Ch. 8 and the QTP section of the Glossary definition of QEE in looking for guidance as to how the IRS will treat fees. Thus, when I see the Ch. 2 Pg. 17 references to “Medical expenses (including student health fees)…even if the amount must be paid to the institution as a condition of enrollment or attendance,” I interpret this to apply only to the AOC. This is supported by the fact that Room and Board is specifically also included in this same list of expenses to be excluded from QEE, when in fact these are clearly included in the QEE calculation for QTPs. The other language you cite regarding “sports, games or hobbies” is also found only in this AOC chapter and, in any event, seems to be directed at courses on sports, games or hobbies (e.g. something like a “Theory of Football” course) rather than for fees unrelated to a specific course. Similarly, the language on combining fees and receiving an allocation of those fees is only found in this AOC chapter.
Based on everything I’ve now read (IRC language and IRS Pub. 970), unless there’s some other case results or other IRS guidance of which I’m not aware, I’m comfortable that all fees required for enrollment or attendance at an eligible school are eligible to be included in QEEs under a QTP.
Robert Farrington says
I think that’s a broad interpretation but I also always think about risk, and the risk here is really, really minimal.
If you figure the total costs of fees each year are going to be about $200-500, and your 529 withdrawals are pro rata, your total gain is going to be maybe $100 to $300? Then your 10% penalty and gains you’re avoiding are $50 to $200 maybe? That level of income is very low and if the documentation is there, you’ll probably be fine anyway.
Randy says
Yes, completely agree with you on the low risk level. Thanks again for all your help.
Nancy says
Hello – just a quick question. My daughter is living off campus this year but will be attending class on campus for most of the day, Monday through Friday. Can her 529 fund be used to purchase flex dollars on her student account so she can have lunch in between classes?
Robert Farrington says
You can use the amount up to the cost of attendance for living off campus.
KP says
My son is attending a university that requires freshman to live on campus unless home of record is within 30 miles. We only live about 15 miles from the university but want him to have the experience of living on campus. Can we still use 529 funds to cover the cost of room and board?
Robert Farrington says
Yes, it doesn’t matter if he lives on campus or off campus, you can use the funds to cover room and board.
Gay Pelletier says
My son is attending UBC in Vancouver, Canada. When I look at the breakdown of the required fees for attendance (Tuition), some of the fees include athletics and rec., intramural, health and dental fee, bike kitchen, Upass (I think this is for the bus)…. If they are required, do they qualify, even though they would not qualify on their own?
Robert Farrington says
The answer is some may be able to qualify, other specifically no. For example, health and dental fee has been clearly ruled no by the IRS. The other required fees, I’d honestly question if required or opt-out versus opt-in. If you really can’t opt-out, then you have a case for reimbursement. Just keep your documentation.
At the end of the day, the risk is low and the penalty is low for small dollar fees if you’re wrong. The choice is yours to pursue or not.
Gay Pelletier says
If my son attended an orientation program for international students the week before school started but he was not required to attend. It was just highly recommended and he had to pay a fee. Would it qualify?
Robert Farrington says
If it wasn’t required, the it’s not qualifying.
Erin Lenardon says
Thank you for your blog! It is very helpful.
I didn’t see you mention the American Opportunity Tax Credit anywhere.
If you have a low income and will qualify for this tax credit on your taxes, than you should subtract $4000 before taking a withdrawal for each child’s account or else this is considered double dipping. Is this correct?
Also, I was told to request the withdrawal in the beneficiary’s name, but what is the purpose if the owner pays the taxes on the 529?
Thank you for your help!
Robert Farrington says
You cannot double-dip the tax credit and 529 plan qualified withdrawals. I’ve written about it in several other articles – especially why late savers shouldn’t use a 529 plan because the tax credits are a better deal.
Anyway, let’s say tuition was $20,000. You want to coordinate benefits with your 529 plan and tax credit (if you qualify based on your MAGI). The tax credit value is $2,500, and requires $4,000 in tuition to get that amount. So, $20,000 – $4,000 leaves $16,000 that you can have as qualified expenses for your 529 plan.
As for the withdraw – yes in the beneficiary’s name. The reason is that while the 1099-Q will have your SSN (and be reported on your taxes), to be qualified, it needs to line up with the 1099-T (the education expenses reported by the institution), which will have the beneficiary’s name on it. The two forms go hand-in-hand.
Erin Lenardon says
Thank you so much for your quick response.
Just to clarify, can the AOTC only be for tuition? or qualified higher education expenses? How does that work if you had financial aid grants, such as Pell Grants, that paid for part of your tuition? For example, your semester tuition is $5000 and the grants paid $4000, but you still have all of the Room & Board expenses and other to pay.
Robert Farrington says
AOTC is for qualified higher education expenses.
Connie says
Hi Robert,
Thank you for helping so many parents with their questions. I have been searching on the IRS website, contacting the school cashier office, financial aid, googling, and even contacting my tax preparer but this site is the most helpful with the Q/A section. You mentioned that mandatory orientation fee is cover under 529. The full cost we paid for orientation was $ 419 but the student portion was $ 305 so I assumed I should ask disbursement of $ 305 from the 529 plan and not the $114 for parents to attend the second orientation day? Also, my daughter was asked to take an analytical writing placement examination test at the university she is attending this month. Does this count as QHEE? She needed to take this test before she can choose her classes. Please advise and thank you for your help.
Robert Farrington says
I would claim the $305, not the amount for parents.
As for your daughter, if the test is required, it counts.
Denise Martinolich says
My son has just started his first year at a service academy. . He is not charged to tuition or room and board. He does have to pay for books and equipment which are estimated to be around 20k over the four years. We have more than 20k saved in a 529 for him. I know there are provisions for getting money from a 529 plan when the beneficiary is going to a service academy, but I cannot find any specifics. What can you tell me?
Robert Farrington says
If your child attends a service academcy, you can still withdraw the funds and avoid the 10% penalty tax, because of the Military Family Tax Relief Act of 2003 which provides that attendance at a U.S. military academy will be treated as a scholarship for purposes of non-qualified withdrawals from a 529 plan. However, like a scholarship, the earnings portion of the account will be taxable.
So, you don’t have to pay a penalty, but you still pay taxes.
If you have other children, you might consider changing the beneficiary to them and use the funds for their education. Or, you could wait until you have grandchildren.
Eric J says
Hi Robert,
TX A&M schedules a mandatory one-on-one “New Student Conference” meeting for each incoming freshman. The cost is $225. Can I use the Coverdell ESA to cover this cost?
Thanks,
Eric
Robert Farrington says
Yes, a mandatory orientation fee like that is considered a qualifying higher education expense.
B. LIGHTNER says
Hello,
We have daughter attending 4 year nursing BSN program at PA university. As a junior and senior, the program requires her to provide her own transportation to and from clinical rotations off campus. There is no transportation service provided by the school. There is no public transportation near the campus. She is required, for participation in the nursing program, to travel to various clinical locations 3 to 4 times per week. The locations can be 5 to 40 miles away from campus. It includes dayshift and nightshift. Clinical rotations are for credit and no pay is received. In this case, she needs a car to fulfill that requirement. Can a car be a qualified educational expense for our nursing student? Thank you.
Robert Farrington says
No, transportation is not considered a qualifying higher education expense.
Valerie C. says
Dear Robert:
If I set-up a 529 plan for my nephew this year, and my sister has already paid the tuition earlier this year, can a withdrawal be made to her as a third-party to reimburse her?
Robert Farrington says
Yes, same tax year, it’s allowed.
Sue says
My aunt (now deceased) set up a 529 account for my nephew and appointed me as the account owner. He is currently in his junior year of college and living off-campus. Are we able to make a qualified withdrawal to pay for rent? He also receives several scholarships, has a student loan and work study. Do those have to be factored in to determine if it is a qualified withdrawal for off-campus rent expenses? I’m assuming the rent withdrawal can be for 9 months of rent.
Robert Farrington says
You need to pull up the school’s cost of attendance (usually on the financial aid website, but sometimes you need to call and get it). It will have an amount for off campus housing – and you can use up to that amount. So, if his apartment costs more, you pay the difference.
As for scholarships and loans, yes, you need to take them into account. Total cost of everything allowed – scholarships – work study – loans = remainder. You can use the 529 amount for the remainder.
Going forward, I personally would ensure that you use all the 529 plan money before taking out any more student loans.
Lynn Lagerlund says
Is a scientific graphing calculator allowed for a qualified withdrawal?
Robert Farrington says
If it’s required for your course (i.e. listed on the syllabus as required), then yes.
A Garza says
My daughter participated in an unpaid internship for 5-weeks requiring moving her to another state. This was between graduating from high school in dual credit program with a local community college and beginning a 4-year university. Do her living expenses or any other expenses count for the 529?
Robert Farrington says
An internship is work, not education. This is not a qualifying education expense.
Mitch says
Excellent information and very helpful to read through 1+ year of questions & answers. I didn’t see the answer to my specific question. I have 529 $ for my child living at home/commuting. My child also receives student loans that are applied against tuition each semester. Can I still use 529 money for the full tuition cost even though the student loans reduce the amount of the check that I write each semester ? Put another way with a simple example: tuition is $4,000 a semester, we receive a student loan for $2,500 and pay $1,500 by check. Is the 529 qualified distribution $4,000 or $1,500 ? If it is $1,500, then could I write a $4,000 check each semester which would result in the $2,500 student loan being paid out which could then be used for other non-qualified 529 expenses (commuting, etc) and allow me to withdraw the full $4,000 tuition from the 529 ?
Robert Farrington says
As it stands currently, the 529 would be for the $1,500. You could (and I recommend you should) use it for the full amount. I never recommend borrowing until the 529 in exhausted completely.
If you pay the full amount, it’s possible BUT you may not be able to borrow Federal loans because they are considered financial aid up to the total amount due. Speak to the financial aid office to ensure that all your aid and payments are coordinated correctly to not mess it up.