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What College Expenses Do 529 Plans Cover and Not Cover?

May 27, 2012

For the last 18 years you have invested in a 529 Plan every month. Now that your college student is about to enter college for the first time you will be accessing that 529 account. There are so many different things you need to pay for this coming school term and you are not sure what your 529 plan is allowed to pay for. The following is a list of what is covered and what's not covered under a 529 plan.

Here are a few guidelines, based on information in Publication 970 from the IRS, which gives detailed guidance on qualified expenses.

What's Covered

  • Tuition and required fees are covered in full.
  • Room and board, if the student is enrolled at least half time. However, such expenses must be not more than the greater of: 1) the allowance for room and board, as determined by the school, that was included in the cost of attendance; or 2) the actual amount charged if the student is residing in housing owned or operated by the school.
  • Food: If you spend a certain amount for a meal plan, that entire amount can be deducted, even if used for coffee or ice cream and not a full meal. Weekend meals can also be included if the dining halls are not open.
  • Books and supplies: Any fees associated with purchasing school textbooks are considered qualified, as are required equipment or supplies such as notebooks and writing tools.
  • Computers/laptops, but only if required by the school. If required, Internet fees and PDAs or “smartphones” may also qualify. The Savings Enhancement for Education in College Act (H.R. 529), currently under consideration by Congress, would expand this definition to apply to all computer technology used by the student.
  • Special needs services required by special-needs students that are incurred in connection with enrollment or attendance at school.


What's Not Covered 


  • Student loans: Interest on or repayment of student loans is not considered a qualified expense by the IRS.
  • Insurance, sports or club activity fees, and many other types of fees that may be charged to students but are not required as a condition of enrollment.
  • Transportation to and from school.
  • Concert tickets or other entertainment costs, unless attendance is required for a course or curriculum.

Note that expenses must apply to a qualified college, university or vocational school for post secondary educational expenses. Withdrawals used for qualified expenses are generally free from federal income tax. Tax treatment at the state level may vary, and may depend on your residency status in that state.

Check before you spend funds from a 529 plan. Taxes and a possible 10 percent penalty apply to all distributions that are not considered

Updated Benefits

Congress Approves Computers as a Qualified Higher Education Expense for 529 Plans - See more at Here

22 comments

  1. what if my child doesnt want to attend college who would get her money

    ReplyDelete
  2. You have a few choices. You could transfer the money to another child or yourself. Grandchildren, nieces and nephews, etc. could use this money. If you have no one that can use it, you could always close the account and have the money returned to you.

    But there would be taxes to pay on any growth.

    ReplyDelete
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