What Can a 529 Be Used For? Qualified Expenses Explained
Explore the versatile uses of a 529 plan, from higher education to loan repayment, and maximize its benefits for your educational needs.
A 529 plan is a savings tool designed to help families fund educational expenses. With the rising costs of education, understanding the flexibility of these plans can significantly impact financial planning.
Qualified Higher Education Costs
529 plans cover a wide range of expenses for higher education. According to the Internal Revenue Code Section 529, these include tuition, fees, books, supplies, and equipment required for enrollment or attendance at eligible institutions, such as colleges, universities, vocational schools, and other post-secondary institutions that qualify for U.S. Department of Education student aid programs.
Room and board are included if the student is enrolled at least half-time. The IRS allows for expenses up to either the institution’s determined allowance or the actual cost of institution-owned housing, which benefits students living on or off-campus.
Additionally, the cost of special needs services related to enrollment or attendance is covered, ensuring students with disabilities can access higher education opportunities.
K-12 Education
529 plans also support K-12 education expenses. Since the Tax Cuts and Jobs Act of 2017, families can use up to $10,000 annually for tuition at public, private, or religious elementary and secondary schools. This change expands educational options and reduces the financial burden of private schooling or specialized programs.
Families should review their state’s specific 529 plan rules, as state tax benefits and regulations vary. Some states offer tax deductions or credits for contributions to in-state plans, providing additional financial advantages. However, penalties or limitations for non-qualified expenses should be carefully considered to avoid unintended costs.
Apprenticeship Programs
The SECURE Act of 2019 expanded 529 plans to include apprenticeship programs registered with the U.S. Department of Labor. These programs combine on-the-job training with classroom instruction, offering practical skills in trades like electrical work, plumbing, and IT.
529 funds can be used for fees, books, supplies, and equipment required for apprenticeships, similar to traditional higher education expenses. This flexibility allows families to invest in education that aligns with workforce needs and provides a pathway to stable careers.
Loan Repayment Options
The SECURE Act also permits 529 plan funds to be used for student loan repayment. Account holders can use up to $10,000 to repay student loans for each beneficiary and their siblings. This provides a new option for managing educational debt, enabling families to reduce loans while maximizing their savings plans.
Using 529 funds for loan repayment complements traditional debt management strategies. Families with leftover savings after graduation can redirect these funds toward debt reduction, maintaining the tax-advantaged benefits of the plan while improving financial outcomes.