PA 529 Withdrawal Rules and Process

The Pennsylvania 529 Investment Plan provides a tax-advantaged way to save for future education expenses. The primary benefit of the plan is that the money grows tax-deferred, and withdrawals are tax-free when used for specific, approved purposes. Understanding the rules for accessing these funds is a main component of managing the account effectively.

Defining Qualified Withdrawals

Higher Education Expenses

Funds from a PA 529 plan can be withdrawn tax-free to cover qualified higher education expenses at eligible post-secondary institutions. These costs include tuition and mandatory fees required for enrollment or attendance. The plan also covers expenses for books, supplies, and equipment that are required for courses.

Room and Board

Withdrawals can also be used for room and board costs, but specific conditions apply. The student must be enrolled at least on a half-time basis for the housing and food expenses to be considered qualified. The amount of the withdrawal for room and board cannot exceed the allowance for such costs included in the school’s official cost of attendance figures.

K-12 Tuition

Account owners can withdraw up to $10,000 per beneficiary, per year, to pay for tuition at an elementary or secondary school. This applies to public, private, and religious institutions. This annual limit is on a per-beneficiary basis, meaning if a student has multiple 529 accounts, the total K-12 tuition withdrawals cannot exceed $10,000 in a calendar year.

Student Loan Repayment

A lifetime maximum of $10,000 can be withdrawn to repay the principal or interest on a qualified education loan. This benefit can be applied to the loans of either the designated 529 beneficiary or one of their siblings. This lifetime limit is per individual, ensuring the total amount from any 529 plans used for loan repayment does not surpass the $10,000 cap.

Apprenticeship Programs

Qualified expenses also include costs associated with certain apprenticeship programs. Withdrawals can cover fees, books, supplies, and equipment required for participation in a program that is registered and certified with the Secretary of Labor under the National Apprenticeship Act.

Tax Consequences of Non-Qualified Withdrawals

When funds are withdrawn from a PA 529 plan for purposes other than qualified education expenses, the earnings portion of the withdrawal faces tax consequences. The original contributions are always returned tax-free. However, the investment growth on those contributions is subject to taxation and potential penalties if the withdrawal is non-qualified.

The federal government imposes income tax on the earnings portion of a non-qualified distribution. In addition to regular income tax, a 10% federal penalty tax is applied to these earnings. For example, if a non-qualified withdrawal includes $1,000 in earnings, that portion would be subject to both federal income tax and a $100 penalty.

At the state level, the earnings portion of a non-qualified withdrawal is subject to Pennsylvania’s personal income tax. For 2025, Pennsylvania provides a state tax deduction for contributions up to $19,000 per beneficiary for individuals and $38,000 for married couples filing jointly. If you take a non-qualified withdrawal, any state income tax deductions you previously claimed for those contributions will be “recaptured,” meaning they must be added back to your taxable income.

Rollovers to a Roth IRA

A provision from the federal SECURE 2.0 Act allows beneficiaries to roll over money from a 529 account to a Roth IRA in their own name without incurring federal or Pennsylvania state income tax. The 529 account must have been open for a minimum of 15 years before a rollover is permitted. The amount rolled over in any given year cannot exceed the annual Roth IRA contribution limit, and there is a lifetime maximum of $35,000.

Information and Documentation for a Withdrawal Request

Before initiating a withdrawal, gather the account owner’s personal information, the beneficiary’s full name and Social Security or Taxpayer Identification Number, and the school’s full name and address. You must also decide on the destination for the funds: directly to the account owner, the beneficiary, or the educational institution. Direct deposit requires bank account and routing numbers, while payments to a school need a precise mailing address.

The official Withdrawal Request Form is available on the PA 529 plan’s website. On the form, you will specify the withdrawal amount and indicate whether it is a qualified or non-qualified distribution. For K-12 tuition withdrawals, you may need to certify that the funds will be used for that specific purpose.

The Withdrawal Process

You can submit your withdrawal request through the PA 529 plan’s online portal. The online system may require you to upload supporting documents, such as a copy of the student’s itemized tuition bill. Alternatively, you can submit a physical Withdrawal Request Form by mail to the address specified by the PA 529 program.

After submitting your request, you should receive a confirmation of its receipt. The processing time for a withdrawal is up to ten business days, after which the funds will be disbursed. Be aware that if you have recently changed your address or made recent contributions by check, there may be a brief holding period before the withdrawal can be finalized.

Tax Reporting for Withdrawals

Following any withdrawal from a PA 529 account, the plan administrator will issue IRS Form 1099-Q to the recipient of the funds. The form details the total amount of the withdrawal, breaking it down into the earnings portion and the contribution portion (basis).

For withdrawals used entirely for qualified education expenses, the distribution is not reported as taxable income on your federal or state tax returns. You must keep records of the educational expenses to prove the withdrawal was qualified in case of an IRS inquiry. If a portion of the withdrawal was non-qualified, the earnings amount must be reported as “Other Income” on your federal tax return, and you will also need to file Form 5329 to calculate the 10% penalty.

It is important to coordinate 529 withdrawals with other education tax benefits, such as the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit (LLC). The same educational expenses cannot be used to justify both a tax-free 529 withdrawal and another tax benefit. You must allocate the expenses between the different benefits to avoid “double-dipping” on tax advantages.