Client login
Client login

What Counts as a Qualified Expense for a 529 Plan

What Counts as a Qualified Expense for a 529 Plan

After years of saving for college in your 529 plan, the day has finally arrived that you need some of that money to start school. You have control of how much money you withdraw from your 529 account and what to spend it on. However, before you feel flush in cash, it’s important to know what is covered as a “qualified” expense.

Covered qualified expense:

Tuition: The cost of courses taken from an accredited school regardless of whether they are full time or part time. Most schools are accredited, but if you’re unsure it’s a good idea to double check with the financial aid office.

Room and Board: This is covered as a 529 expense if paid directly to the university, or it meets the budget that the university has set. If renting a place off campus and are paying rent directly to a landlord, it must not exceed the budget the university has set for housing. If it exceeds that budget, it is not a qualified expense covered by a 529 plan.

Books and Supplies: Anything required for class is covered as a 529 expense. This includes textbooks, lab supplies, calculators. A 529 plan can only cover required items, so a trip to an office store to pick up planners, pencils and other various school supplies is likely not covered unless a class specifies it’s required.

Technology: If a new laptop or printer is needed to go to college, these expenses can also be covered by a 529 plan. The technology must be used by the 529 beneficiary while they are in school. This can even cover the software programs used such as the Microsoft Office Suite.

Expenses not covered:

Loan Repayment: You cannot use your 529 plan to repay student loans. If you do you’ll have to pay taxes and penalties on the withdrawal.

Transportation: If your student is commuting to school or goes to school out of state, you cannot use the 529 plan to pay for their plane tickets, gas or car.

General Electronics: The 529 qualified expenses for technology are very specific to what students need for class. A cell phone, personal tablet, or cellular plan do not fall under those specifications.

Fitness Club Membership: The gym class pass at the university is not covered. While the cost of using the gym is probably included in tuition and therefore a qualified expense, any extra add ons that the gym offers is not included since it’s not considered an education expense.

Insurance: Health insurance is not covered as 529 qualified expense because it’s seen as an everyday necessity. It can be confusing because many universities offer a health plan for students coming off their parents health plans, but just because it is expensed by the university, does not mean your 529 covers it.

What if your student has a change in plans and doesn’t attend college, or they get a scholarship, or maybe they just don’t spend all the money in the account?

You can change the beneficiary of the 529 plan to a sibling or another member of the household. IRS Publication 970 has a long list of what family members count.

If your student gets a scholarship there is a scholarship exception to the 10% penalty. You can take a nonqualified withdrawal from the 529 up to the amount of the scholarship. You will have to pay taxes on the withdrawal but you won’t have to pay the 10% withdrawal penalty. Make sure to get receipts for all of your student’s scholarships if you plan to take advantage of this.

Before your student heads off to college, sit down and review the costs and create a withdrawal plan. It’s a good best practice to withdraw on a schedule so you know you have enough money for the four (4) or more years your student plans on attending college.

Sources: Fidelity, The College Investor

 

 

 

Ready to take the next step?

Let’s talk!

Explore what’s possible for you during your retirement

Fiscally Fit: How to Avoid Common Money Mistakes and Make Retirement Planning EASY

We all make mistakes when it comes to money. Have you ever spent hundreds on an item you had to have – but then never used? Have you gone through the ...

December 5, 2019

What Is the Difference Between the Broker-Dealer Standard of Conduct and the Fiduciary Oath?

When it comes to retirement planning, it can be tough to know where to start. For many of us, the subject seems overwhelming and full of unfamiliar te...

August 20, 2019

5 Things to Consider When Planning Your Perfect Retirement

Everyone has a different version of the perfect retirement. Regardless of how much money you have stashed away before entering the new chapter of life...

July 2, 2019