Can You Use a 529 for Trade School?

529 plans are a valuable tool for saving for future education costs, and they can be used to cover expenses at eligible trade schools. These tax-advantaged savings vehicles are designed to make saving for a beneficiary’s educational journey easier, whether that path leads to a traditional university or a vocational program. Earnings grow tax-free, and withdrawals are also tax-free when used for qualified education expenses.

Eligible Educational Institutions

For a trade or vocational school to qualify for 529 plan funds, it must meet specific criteria as an “eligible educational institution.” This means the institution is accredited and eligible to participate in student aid programs administered by the U.S. Department of Education, often referred to as Title IV institutions. Most accredited public, non-profit, and privately-owned for-profit postsecondary institutions, including many trade and vocational schools, fall under these guidelines. You can verify a school’s eligibility by checking the Federal Student Aid School Code Search tool.

Many types of vocational and trade programs qualify for 529 plan usage. These include culinary arts, automotive technology, cosmetology, welding, plumbing, and HVAC. Other qualifying programs encompass paralegal studies, nursing, information technology training, and various certifications like those for machinists or electricians. Registered apprenticeship programs certified with the U.S. Department of Labor are also considered eligible. The institution or program’s participation in federal student aid programs is the key factor for eligibility.

Qualified Expenses

When using 529 plan funds for an eligible trade school, a range of expenses are considered “qualified higher education expenses” by the IRS, allowing for tax-free withdrawals. These include tuition and fees required for enrollment or attendance. Beyond tuition, funds cover books, supplies, and equipment necessary for the student’s courses or program. This can include specialized tools for a trade, such as welding equipment or construction tools. Costs associated with computer technology, including the purchase of computers, related equipment, and internet access, also qualify if used by the beneficiary during their enrollment.

Room and board costs can also be qualified expenses, but specific conditions apply. The student must be enrolled at least half-time at an eligible educational institution. The amount withdrawn for room and board cannot exceed the allowance determined by the institution for its cost of attendance for room and board, or the allowance for federal financial aid purposes for students living off-campus. Expenses for personal items, transportation, or extracurricular activities not required by the program are not considered qualified expenses and could lead to taxes and penalties if paid for with 529 funds.

Accessing Funds

To access funds from a 529 plan for qualified trade school expenses, the account owner initiates a distribution request with their 529 plan provider. Funds can be disbursed in several ways: either sent directly to the educational institution, or to the account owner or beneficiary to reimburse them for expenses already paid out of pocket. When reimbursing yourself, it is important that the withdrawal occurs in the same calendar year that the qualified expense was incurred to maintain its tax-free status.

Accurate record-keeping is important to demonstrate that distributions were used for qualified educational expenses. You should retain receipts, invoices, and other documentation for all qualified expenses. Annually, the 529 plan administrator will issue IRS Form 1099-Q, “Payments From Qualified Education Programs,” which reports the total distributions made from the account during the year, including the earnings and contribution portions. While qualified distributions are tax-free, any portion of a distribution that exceeds qualified expenses or is used for non-qualified purposes will be subject to federal income tax on the earnings portion, and may also incur a 10% federal penalty tax.