College · February 11, 2021

6 Uses for a 529 College Savings Plan Besides Tuition

A 529 college savings plan can be a helpful way to put money aside for your children's education fund. But when it comes time to take the money out, the details can be a bit more complex. If you don't use the money from a 529 plan for qualified expenses, you might get hit with a 10% penalty fee and have to pay income tax on the money withdrawn.

Luckily, the funds in a 529 plan don't have to be spent on tuition alone—several other education-related expenses qualify, too. Here are a few qualified 529 plan uses you might not have known about.

1 Books and computers

Course textbooks qualify as an expense if they're on the required reading list. Other materials needed for classes can also qualify, but only if they're listed as essential by the school or professor. You may also be able to purchase computers and software with funds from a 529 plan, provided it's listed as necessary to complete coursework.

2 Room and board

In addition to room and board provided by the institution, your student's college fund money can help pay for their off-campus housing expenses. However, it only qualifies for up to the amount charged by on-campus housing. The same rules apply to food. Just double-check that the amount used for food is at or below what the college or university would charge for a meal plan.

3 Business expenses

If your child is thinking about starting a business soon after they graduate, you may be able to use a 529 plan to buy equipment for their company. You'd just need to purchase it while the student is still in school and ensure they'll use it in one of their courses.

4 Special-needs resources

If your student needs a wheelchair or other resources to succeed at school, you can use money from a college fund to pay for them. Some transportation costs may also qualify, depending on the nature of their special needs.

5 Internet service and other technology fees

A 529 plan can help pay for internet service—in most cases today, a web connection is essential for the student to complete their coursework. Software programs needed for classes can also qualify as an expense. Just make sure the technology is required for enrollment in the class to ensure the expense qualifies.

6 K-12 education

The money in a college fund doesn't have to be spent on a university degree. You can use up to $10,000 per year to pay for elementary or secondary education in public, private, or religious schools.

Other important 529 considerations

Taking all the money out of a 529 plan when your child begins their post-secondary education isn't always the best choice. You can only use the funds during the year you withdraw the money.

Figure out how much money your child will need over the next 4 years, and determine if they'll need additional loans. The amount of money you can borrow from federal loans each year is limited, so spread out your 529 funds over 4 years so you don't max out on student loans.

If your child plans to go to graduate school or medical school, the 529 plan can be used to fund these expenses as well. Money from a college savings plan can be transferred to another family member if one of your children decides not to use all of the funds.

Once you decide how much money you'll need to withdraw, figure out where you want the money to go. The great thing about the 529 plan is that you control how the assets are spent. You can send the money directly to the college or university, or release the funds to your student.

No matter what expense you pay with a 529 plan, make sure to keep copies of all receipts. You'll need to provide these when filing your taxes to help reduce your chances of incurring any penalty charges.

Providing your child with a 529 college savings plan is a great way to help them fund their higher education. Understanding exactly what you can use the funds for will help you make the best use of the plan and set them up for the future they want.


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