As the new school year approaches, it is a great time to review your education expenses and make sure you are using your 529 savings plan to its fullest potential. Managing the cost of education can be challenging, but a 529 plan can provide valuable assistance. These tax-advantaged accounts were originally designed to cover college expenses, but their flexibility has grown. Today, 529 funds can be used not only for college but also for K–12 tuition at public, private, and religious schools, as well as expenses related to two- and four-year colleges, trade schools, graduate programs, and some international institutions.
Understanding 529 Plans
To ensure your withdrawal is considered qualified, the distribution must occur in the same calendar year the expense is incurred. Taking a withdrawal at the wrong time could result in taxes and penalties.
Here are some common qualified education expenses:
Tuition and Enrollment Costs
Higher education includes most colleges, universities, and graduate programs that participate in federal student aid programs. Vocational or trade schools include institutions like culinary schools, as long as they are eligible for federal student aid. For K–12 education, up to $10,000 per student, per year, may be used toward tuition at eligible elementary or secondary schools.
Room and Board
On-campus housing expenses are covered, while off-campus housing may qualify only up to the school’s published cost of attendance.
Books and Supplies
Required textbooks, paper, pens, and other course materials are covered, up to the school’s budget for supplies.
Special Needs Services
Equipment and services for students with special needs may qualify, including certain transportation costs.
Technology and Internet Expenses
Technology is often essential for learning, and certain tech-related expenses may also qualify. Computers must be used primarily for educational purposes while the student is enrolled. Software must be required for a specific course, such as those in design or engineering programs. Internet access may qualify in some cases, but it’s best to confirm with your provider and the plan sponsor.
Understanding what your 529 plan covers can help you avoid unexpected expenses and make smarter decisions for the school year ahead. Because rules and benefits can vary by state and school, be sure to consult with your plan provider, the school, or a member of our team to confirm that your intended uses are qualified.
Planning ahead for education costs can feel overwhelming, but a 529 savings plan offers a smart, flexible way to get started. Whether you’re saving for college, K–12 tuition, or even your own future learning, 529 plans provide valuable tax benefits and investment growth opportunities. Here’s what you need to know:
Does saving in a 529 plan severely limit financial aid?
No, 529 plans don’t significantly hurt financial aid. Parent-owned 529 assets are counted at a maximum of 5.6% in aid calculations, while student-owned assets can be assessed up to 20%. This makes the impact of 529 savings relatively small.
Will I lose the money if my child or beneficiary doesn’t go to college or doesn’t need all the funds?
No, you won’t lose unused money in a 529 plan. The money can be used for post-secondary education, transferred to another beneficiary, or even used for your own education. If your child or beneficiary receives a scholarship, you can withdraw an equivalent amount without penalty, though earnings will still be subject to taxes. Non-education withdrawals, however, may incur taxes and a 10% penalty on the earnings portion. Contributions are always tax- and penalty-free. Beginning January 1, 2024, the IRS also permits 529-to-Roth IRA transfers under certain conditions.
Can money in a 529 plan be used for K-12 school tuition?
Yes, money in a 529 plan can be used for elementary, middle, or high school tuition, with up to $10,000 allowed per beneficiary each year. At the post-secondary level, 529 plan funds can be used for a wide range of higher education expenses, including tuition, fees, room and board, books, supplies, and computers or related equipment.
Can only parents open a 529 college savings account?
No, parents are not the only ones who can open a 529 college savings account. Anyone—friends, family members, or even non-relatives—can open an account for a beneficiary, regardless of income or their relationship to the student. They can also name themselves as the beneficiary if desired. Additionally, anyone can contribute to the account, so grandparents, uncles, aunts, and friends are all welcome to help. However, it’s important to note that if a family member other than the parent opens the account, it may affect the student’s financial aid eligibility depending on when the funds are used.
Can I save enough to make a difference?
Yes, even small, consistent savings can add up—especially over time with compounding interest. Encourage friends and family to contribute for birthdays or holidays to boost your efforts. Every bit helps reduce future borrowing.
Saving for education through a 529 plan offers flexibility, tax advantages, and long-term benefits that can significantly impact your child’s future. Whether you’re just starting or already saving, every contribution helps reduce future costs. Understanding how these plans work empowers you to make smart, goal-aligned decisions—it’s never too early to begin.