Most parents worry about paying for their children’s education. Whether your family is keeping an eye on rising college costs, or you’re considering enrolling a child in private school, saving in a 529 account lets your money grow and be withdrawn tax-free if you use the money for qualified education expenses.
But what exactly are the approved uses of 529 accounts? After all, “education expenses” is a broad term that could mean many different things. It’s important to know what meets the requirements as a “qualified” education expense to avoid potential penalties and tax implications.
There are some standard costs associated with education that fall into the “qualified” category of expenses such as tuition and textbooks, but there are also some qualified expenses that support a student’s education like computers and tutoring.
Are These Common Expenses Considered Qualified Education Expenses?
Keep in mind that this is not an exhaustive list of qualified expenses, and rules for some of these expenses can be more complicated than others. You can always review the IRS 529 plan guidelines or your 529 plan for more specific information.
Related: Link to Enrollment Deposit Article
|Type of Expense||Is It a Qualified Expense?||How it Works|
|Tuition and Fees||Yes||Up to the full amount of college or vocational school tuition and mandatory fees.1 Limited to $10,000 per year for K-12 tuition.|
|Books and Supplies||Yes||For college expenses only.|
|Computers, Software and Internet Access||Yes||For college expenses only.|
|Room and Board||Yes||For college expenses only, if the student is enrolled at least half-time.2|
|Special Needs Equipment||Yes||For college expenses only.|
|Transportation and Travel Costs||No||Costs associated with transportation to and from campus (including airfare and gas) are not qualified education expenses.|
|Health Insurance||No||Even health insurance policies offered by a school are not considered qualified education expenses.|
|College Application and Testing Fees||No|
|Extracurricular Activity Fees||No||Contact a tax professional for specific circumstances.|
|Student Loans||Yes||With a lifetime limit of $10,000.|
|Study Abroad||Yes||Most study-abroad expenses (tuition, fees, required textbooks, and approved room-and-board expenses) are approved qualified expenses. Travel costs — including airfare and train fare — are not covered.|
What Happens if You Use a 529 Plan for Non-Qualified Expenses?
You can withdraw funds from your 529 account at any time, for any reason, but remember: if you withdraw money for non-qualified expenses, you will incur income taxes on the earnings portion of the withdrawal.
Plus, you will have to pay an additional 10% penalty on those earnings, and some states can also impose additional penalties.
529 plans can play an important role in your family’s education savings planning when used correctly. Virginia529 can help you learn the ins and outs of your 529 account through videos, calculators and other resources so that when the time comes to use your account, you’ll make the most of your savings.
1. For purposes of Prepaid529 only, Virginia529 defines tuition as the undergraduate in-state semester or term charges for tuition and mandatory fees required and imposed as a condition of enrollment of all students by a two-year or four-year Virginia public school. Prepaid529 is permanently closed for new enrollment. Current Prepaid529 contract holders should visit https://www.virginia529.com/invest/prepaid/ for more information.
2. For room and board expenses to be considered qualified educational expenses, the student must be enrolled in an eligible college program on at least a half-time basis. Qualified room and board costs can include both on- and off-campus housing costs if they were incurred during an academic period during which the student is enrolled or accepted for enrollment in a degree or certificate program or another program leading to a recognized education credential. See Savingforcollege.com for more information.