Can a Parent Use a Child’s 529 Plan for Non-Education Expenses?

A 529 plan is a tax-advantaged savings account designed to help families save for education expenses. While these accounts offer significant benefits for qualified costs, many parents wonder if they can access the funds for other purposes without penalty. Understanding the rules around non-educational withdrawals is essential to avoid unexpected taxes and penalties.

Ownership and Control

A 529 plan gives the account owner full control over how funds are managed and distributed. Typically, a parent or grandparent serves as the owner, while the child is the beneficiary. Unlike custodial accounts, where assets transfer to the child at adulthood, a 529 plan remains under the owner’s control indefinitely. The owner can make investment decisions, change beneficiaries, and determine when withdrawals occur.

Withdrawals are allowed at any time, but their purpose determines whether taxes and penalties apply. If used for qualified education expenses, earnings remain tax-free. Non-educational withdrawals, however, incur income tax on earnings and a 10% penalty. Contributions, made with after-tax dollars, can always be withdrawn tax-free.

If the beneficiary does not need the funds, the owner can change the beneficiary to another qualified family member, such as a sibling or cousin, without tax consequences. This flexibility allows funds to stay within the family for educational use.

Eligible Education Costs

529 funds cover a broad range of education-related expenses without triggering taxes or penalties. Tuition and fees at eligible postsecondary institutions—including colleges, universities, and vocational schools—qualify as long as the school is recognized by the U.S. Department of Education. This includes public and private institutions, as well as some international schools.

Room and board expenses are covered if the student is enrolled at least half-time. This includes dormitory costs for on-campus students and rent, utilities, and food for those living off-campus, up to the school’s published cost of attendance. Families should check the institution’s official housing budget to ensure compliance.

Technology expenses such as computers, software, and internet access qualify if required for coursework. Additionally, specialized equipment necessary for certain fields of study, such as engineering or graphic design, may also be covered.

K-12 tuition is an eligible expense, with up to $10,000 per year allowed for private or religious school tuition. This cap applies per student, meaning multiple 529 plans cannot be used to exceed the limit.

Non-Qualifying Uses

Using 529 funds for non-educational purposes results in taxes and penalties. Everyday expenses such as groceries, entertainment, and travel unrelated to schooling do not qualify. Even if a student incurs these costs while attending college, they cannot be covered with tax-free withdrawals.

Medical expenses and health insurance premiums are also ineligible. Doctor visits, prescriptions, and insurance plans, even those purchased through the school, cannot be paid for with 529 funds. Transportation costs—including gas, car payments, and airfare—are not covered unless the travel is part of a study-abroad program directly billed by an eligible institution.

Student loan payments are partially covered. The SECURE Act of 2019 allows up to $10,000 in lifetime withdrawals per beneficiary to repay student loans. Any amount beyond this cap is considered a non-qualified use, subjecting the earnings portion to taxes and penalties. Additionally, loan interest paid with 529 funds cannot be deducted, reducing potential tax benefits.

Tax Consequences

Non-qualified withdrawals trigger federal income tax and a 10% penalty on the earnings portion. Contributions are not taxed since they were made with after-tax dollars, but investment gains must be reported as ordinary income. Taxes are assessed based on the account owner’s or beneficiary’s tax bracket, which may result in a higher tax liability for parents in upper income brackets compared to students with little or no taxable income.

Some states impose additional penalties or require repayment of previously claimed state tax deductions. For example, New York and Illinois mandate the recapture of state tax benefits if funds are withdrawn for non-educational purposes. Each state has different rules, so reviewing plan-specific provisions before making a non-qualified withdrawal is important.

Changing Beneficiaries or Owners

If the original beneficiary no longer needs the funds, the account owner can change the beneficiary to another family member without tax consequences. The IRS defines eligible family members broadly, including siblings, parents, cousins, nieces, nephews, and even spouses. If the new beneficiary has greater educational expenses or is in a lower tax bracket, this can help maximize tax-free withdrawals. However, if the new beneficiary is not a family member, the IRS may treat it as a non-qualified distribution, triggering taxes and penalties. If the new beneficiary is in a different generation, such as a grandchild, the transfer could be subject to federal gift tax rules if the amount exceeds the annual exclusion limit of $18,000 per recipient in 2024.

Transferring ownership of the account is more restricted. Many states and plan administrators require a formal process, often limiting ownership changes to cases of divorce, death, or specific legal circumstances. Unlike beneficiary changes, ownership transfers may have state tax consequences, especially if the new owner resides in a different state with different tax treatment for 529 plans. Some plans allow successor owners to be named in advance to ensure a smooth transition in the event of the original owner’s passing. Reviewing the specific rules of the plan before attempting a transfer is essential to avoid unintended tax consequences or administrative hurdles.