Where Can You Use a 529 Plan?

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Some adults set money aside for a child's education with a 529 plan. These savings accounts feature many tax benefits. For example, savings grow on a tax-deferred basis. This means the government excludes savings put in a 529 plan from taxable income. Savers can make withdrawals tax-free if they use the funds for qualified education costs. Additionally, they lock in today's tuition rates at designated schools.

So where can you use a 529 plan? You can open and use a 529 plan in any state. You can use the funds at a federally approved college. Opening a 529 plan is a major financial decision. Talk to a financial advisor before opening an account.

What Expenses Can 529 Plans Be Used For?

What counts as a 529 expense? To receive the tax benefits, you can only use 529 savings on qualified items. See below for common eligible expenses. You can also consult the IRS to learn which education expenses count as tax deductions.

Learners attending a federally approved school can use 529 funds on tuition and fees. The federal school code list includes qualifying schools. Most schools charge per-credit tuition, and 529 funds cover these expenses. Required student activity and lab fees are also approved expenses. Learners may use 529 plan funds on lodging and food. However, there are limitations. For example, students living on campus who buy a meal plan may only spend the amount invoiced by the college. Students living off campus may not spend more than the price listed in the cost of attendance (COA). The Setting Every Community Up For Retirement Act allows learners to use 529 funds on student loans. Borrowers must pay the student loan during the same year they get the funds. Most states allow people to use up to $10,000 to repay federal or private student loans. Learners may use 529 funds on required books and supplies. These include textbooks, lab gear, and art supplies. Optional items, like supplemental textbooks, don't qualify. You can prevent tax issues by clearly documenting the required expenses. Keep receipts and syllabi that outline the requirements. Laptops, desktop computers, and class equipment typically qualify for 529 funds. Learners may also buy a keyboard, mouse, or speakers. Internet access that the student primarily uses also counts as a qualified expense. Always document proof of sale and purchase requirements. Students can use 529 funds for meal plans at a federally approved school. They can also purchase meals off campus and buy groceries with these funds. The amount used must not exceed the COA estimate. Keep receipts for each food purchase. Students can use 529 funds on special needs equipment they use for school purposes. Thanks to the ABLE Act, people can roll a 529 plan into an ABLE account for children with special needs. They can do so without any tax penalty.

What Expenses Are Not Covered Under a 529 Plan?

What counts as a 529 expense? Most mandatory educational expenses qualify. However, stay aware of common pitfalls. For example, travel expenses don't qualify as a covered expense, even if required by a course. This means you can't spend 529 funds on a study-abroad program. Health insurance and sports fees also don't qualify as covered expenses.

Even covered expenses don't count in some cases. For example, you can't use 529 funds for optional textbooks used for supplemental reading. Additionally, you can't spend more on room and board than the COA set by your college or university.

Institutions Eligible to Participate in a 529 Plan

So, where can you use a 529 plan? Most accredited colleges and universities count as eligible institutions. Public and private institutions qualify. To find a school's accreditation status, use the U.S. Department of Education's database.

A 529 plan allows you to lock in today's tuition rates. Since tuition rates often rise annually, this could save you thousands of dollars. Talk with a financial advisor for guidance.

What If a Student Doesn't Attend College?

If you or your child don't attend college, the funds won't go to waste. These savings may pay for K-12 tuition or training. For example, you can use the funds to pay for a welding certificate at a community college.

Taxpayers don't receive a tax penalty for leaving funds in a 529 plan. However, they must pay income tax and a 10% penalty on funds used for non-educational purposes. One way to avoid this is to roll the funds over to a different 529 for another beneficiary, such as a sibling.

The government waives the 10% tax penalty in some situations. For example, if the beneficiary dies or becomes disabled, the penalty isn't required. The same is true for beneficiaries who get a tax-free scholarship.

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AffordableCollegesOnline.org is an advertising-supported site. Featured or trusted partner programs and all school search, finder, or match results are for schools that compensate us. This compensation does not influence our school rankings, resource guides, or other editorially-independent information published on this site.

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