What can you spend 529 funds on?
When it comes to saving for a child’s education, a 529 plan is a popular and effective option. But what exactly can you use these funds for? Understanding the permissible uses of 529 funds is crucial to ensure that you’re maximizing the benefits of this tax-advantaged savings vehicle.
Primary and Secondary Education Expenses
The primary purpose of a 529 plan is to cover qualified higher education expenses. However, these funds can also be used for elementary, middle, and high school education expenses. To be considered qualified, these expenses must be incurred at an eligible educational institution and can include tuition, fees, books, and supplies. Additionally, room and board expenses are also eligible if the student is enrolled at least half-time.
Higher Education Expenses
As mentioned earlier, 529 funds can be used to cover qualified higher education expenses. These expenses include tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution. Additionally, room and board expenses are eligible for students enrolled at least half-time.
Computer and Related Technology Expenses
In the digital age, computers and related technology are essential tools for students. A 529 plan can be used to cover the cost of a computer and related technology expenses, such as software and internet access. These expenses must be required for enrollment or attendance at an eligible educational institution.
Qualified Educational Expenses for K-12 Tuition
As of the Tax Cuts and Jobs Act of 2017, 529 funds can be used to pay for up to $10,000 per year in qualified K-12 tuition expenses at a public, private, or religious school. This change has made 529 plans more versatile, allowing families to use these funds for a broader range of educational expenses.
Non-Qualified Expenses
While 529 funds can be used for a variety of educational expenses, there are certain limitations. Non-qualified expenses, such as room and board for students enrolled less than half-time, fines, and penalties, are not eligible for tax-free withdrawals. If you withdraw funds for non-qualified expenses, you may be subject to income tax and a 10% penalty on the earnings portion of the withdrawal.
Understanding the Permissible Uses of 529 Funds
It’s important to understand the permissible uses of 529 funds to ensure that you’re making the most of this valuable educational savings tool. By utilizing these funds for qualified educational expenses, you can help cover the costs of a child’s education and potentially reduce your tax burden. Always consult with a financial advisor or tax professional to ensure compliance with the latest regulations and maximize the benefits of your 529 plan.
