Can I Withdraw Money From My 529 Plan?

A 529 plan is a tax-advantaged savings vehicle designed to fund educational costs. These plans are sponsored by states or educational institutions and authorized under Internal Revenue Code Section 529. While contributions are not federally tax-deductible, earnings grow tax-deferred, and withdrawals can be tax-free if used for qualified education expenses. Understanding withdrawal rules is important for maximizing benefits.

Qualified Withdrawals and Eligible Expenses

A withdrawal from a 529 plan is qualified when funds are used for “qualified higher education expenses” (QHEE). Such withdrawals are exempt from federal and typically state income tax, applying to both contributions and earnings.

Eligible expenses include tuition and fees at any accredited college, university, vocational school, or other postsecondary institution eligible for federal student aid. Costs for books, supplies, equipment, computers, and internet access primarily used by the beneficiary for educational purposes are also qualified.

For students enrolled at least half-time, room and board expenses qualify, limited to the institution’s allowance or actual cost. Special needs services for a special needs beneficiary are also qualified. A 529 plan can cover up to $10,000 per year per student for K-12 tuition expenses at public, private, or religious elementary or secondary schools. As of July 4, 2025, additional K-12 expenses like books, materials, and tutoring are qualified, though the total K-12 distribution remains capped at $10,000 annually per student.

Qualified expenses also include fees, books, supplies, and equipment for apprenticeship programs registered and certified by the Secretary of Labor. Up to $10,000 in lifetime student loan repayments per beneficiary can be made from a 529 plan, applying to the beneficiary’s loans and those of their siblings.

Non-Qualified Withdrawals and Tax Implications

A withdrawal from a 529 plan is non-qualified if funds are not used for eligible education expenses. The earnings portion of a non-qualified distribution is subject to federal income tax at the account owner’s ordinary rate, plus a 10% federal penalty tax. Original contributions are not taxed or penalized.

Exceptions to the 10% federal penalty tax exist, though earnings generally remain taxable. These include withdrawals due to the beneficiary’s death or disability. If the beneficiary receives a tax-free scholarship, grants, or other education assistance, withdrawals up to the amount of the scholarship or assistance are exempt from the penalty. Attendance at a U.S. military academy also provides an exception, up to the cost of attendance. Withdrawals for expenses used to claim the American Opportunity Tax Credit or Lifetime Learning Credit are also exempt, requiring coordination to avoid “double-dipping.”

State tax implications may also arise from non-qualified withdrawals. Some states may impose their own income taxes or penalties on earnings, or recapture previous state tax deductions. Consult specific state rules for potential additional tax liabilities. The recipient of the non-qualified distribution is responsible for paying the taxes.

Initiating a Withdrawal Request

The process for initiating a withdrawal from a 529 plan typically involves contacting the plan administrator. Most administrators offer options to request withdrawals through an online portal, phone, or mail. When preparing a withdrawal request, provide the specific amount of the withdrawal needed, the intended recipient of the funds, and the preferred method of disbursement, such as direct deposit or a physical check.

Providing the purpose of the withdrawal, indicating whether it is for qualified or non-qualified expenses, is important for accurate tax reporting by the plan. The beneficiary’s Social Security Number is also a standard requirement for identification and reporting purposes.

Ensure the withdrawal occurs within the same calendar year as the qualified expenses were incurred. Account owners should retain detailed records, such as receipts and invoices, for all qualified expenses. This documentation is important for substantiating the tax-free nature of withdrawals. After a withdrawal, the plan administrator will issue IRS Form 1099-Q (Distributions From Qualified Education Programs) to the recipient of the distribution. This form details the total distribution, the earnings portion, and the basis (contributions) portion for tax reporting by the individual.

Special Situations and Fund Management

Beyond direct withdrawals for current education expenses, 529 plans offer flexibility for managing funds in various situations. Funds can be rolled over from one 529 plan to another without incurring tax consequences. This tax-free rollover is permitted once every 12 months for the same beneficiary. If the rollover is for a different eligible family member, there is no restriction on the frequency of rollovers. Funds must be transferred to the new plan within 60 days of the withdrawal from the old plan to be considered a qualified rollover.

Account owners can also change the beneficiary of a 529 plan without tax penalties, provided the new beneficiary is an eligible family member of the original beneficiary. This flexibility is useful if the original beneficiary receives a scholarship, decides not to attend college, or has leftover funds.

Coordination of 529 withdrawals with other education tax benefits, such as the American Opportunity Tax Credit or Lifetime Learning Credit, is also important. It is not possible to claim a tax credit for the same expenses paid with tax-free 529 funds, so strategic planning helps avoid “double-dipping” on benefits. The account owner typically retains control over the 529 plan and is the one who initiates withdrawal requests. Funds can be paid to the account owner, the beneficiary, or directly to the educational institution. Additionally, recent legislative changes allow for tax-free rollovers of up to $35,000 from a 529 plan to a Roth IRA for the same beneficiary, provided certain conditions are met, such as the 529 account being open for at least 15 years.