Anyone can open a tax advantaged 529 college plan, including students, parents and grandparents, and other relatives. It is used to pay for college, but not all expenses qualify. Withdrawals from 529 plans are called distributions, and they must be used toward qualified education expenses – otherwise they will face federalqualify. That warning aside, "funds from a 529 plan have become even moflexible in recent years" to include more typical college costs, Tony Durkan, vice president and head of 529 relationship management at Fidelity Investments, wrote in an email. Read on to see some qualified educational expenses that can be paid using 529 funds.
CREDIT College tuition and fees Money saved in a 529 plan can be used to pay tuition and fees associated with college or graduate school. Eligible schools include any postsecondary educational institution that participates in the federal student aid program administered by the U.S. Department of Education. Parents and college-bound students can see whether their school qualifies by checking if the institution is listed on the Federal School Code List. "Don't wait until your kid's about to go to college to start thinking about it," says Paulina Mejia, national fiduciary counsel at Fiduciary Trust International, a wealth management company. "When you have a kid or grandkid, think about setting one up and having it grow and compound tax-free. It's really a powerful investment vehicle."
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Vocational and trade school tuition and fees
The 529 college savings plan can be used to cover certain expenses at eligible higher education institutions other than four-year colleges and graduate school, including community colleges, trade schools and apprenticeships. If a student decides to become a chef, for example, funds from a 529 plan may be used to pay expenses related to attending a culinary institute, provided the institution participates in the Education Department's federal student aid program.
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Elementary or secondary school tuition
Money from a 529 account is not reserved just for higher education expenses. Up to $10,000 per year can be spent on tuition costs at qualified private, public or religious K-12 schools. "It's important to know that the $10,000 annual limit is per beneficiary, not per account – the money can come from multiple 529 accounts," Durkan says. "Any amount over that $10,000 limit will be subject to income tax and a 10% federal penalty tax."
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Student loans
Borrowers can use tax-free 529 funds to pay off student loan debt without paying a penalty. However, there is a lifetime limit of $10,000 in student loan payments that can be made penalty-free with 529 funds. "If you've got a loan and the ability to pay it off with money that's been earmarked, so it can only be used for certain things, and if you're not using it for education anymore or any of the ancillary expenses that are allowed, it could be a great way to reduce your debt," Mejia says.
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Off-campus housing
While investors can use 529 funds to pay for a college's room and board fees, housing arrangements off campus also count. However, funds for off-campus housing qualify only up to the cost of on-campus room and board, experts say. For instance, if university-owned housing is $800 per month, then the disbursement for an off-campus rental can't be more than that amount.
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Food and meal plans
Since room and board costs are qualified expenses for students enrolled at least half time, that means an on-campus meal plan can be paid for with 529 funds. Students living off campus can designate food as a qualified purchase also, as long as the amount spent is less than or equal to what is included in the college's cost of attendance allowance for room and board.
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Books and supplies
Paper, pens and any textbooks or supplies required by specific classes are qualified expenses. Schools will set the budget limit for books and supplies, so experts recommend checking with the institution on the allowable amount for each academic year.
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Computers
While some electronics such as computers are eligible expenses, these items must be required as part of the student's attendance. Experts recommend trying a web search to determine whether owning a laptop is explicitly listed as a requirement for enrollment. For instance, Michigan State University's website reads: "All undergraduate students at Michigan State are required to have a laptop computer." A 529 distribution can also be used to pay for internet service.
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Computer software
Some computer software may count as a qualified expense, if it's necessary to complete coursework. For instance, if a student is studying to be a graphic designerand needs design or editing software, funds from a 529 plan can cover those purchases. But "if your kid is a gamer and wants to get the latest games or consoles, that's not college-related equipment," says Kate Goesel, a certified financial planner with Schwab Intelligent Portfolios Premium, an investment advisory company. "So that's not a qualified expense."
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Special-needs equipment
A 529 plan can cover certain services and equipment that a student with special needsmay require, such as a wheelchair. Transportation costs, which are generally considered a nonqualified expense, may qualify depending on a student's special needs. "There really are a lot of ways to be creative with 529 plans," Mejia says.
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Roth IRA
As part of the federal SECURE 2.0 Act, up to a lifetime limit of $35,000 in unused 529 assets can be rolled into a beneficiary's Roth IRA, an individual retirement account, as of 2024. Still, experts advise against overfunding a 529 plan. "This is for people that just happen to have an extra balance that they may not need," Goesel says. "There's so many other things you can do with a 529 balance that may make more sense. ... You can change beneficiaries. You can use the funds for graduate school."
Learn more about saving for college.
Using 529 plans can be a great way to start saving for college and other higher education pursuits early. Follow U.S. News Education on Facebook and X/Twitter to stay informed about the latest tips and advice on paying for college.
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529 qualified expenses
College tuition and fees
Vocational and trade school tuition and fees
Elementary or secondary school tuition
Student loans
Off-campus housing
Food and meal plans
Books and supplies
Computers
Computer software
Special-needs equipment
Roth IRA