Qualified higher education expenses include the following:
- Tuition, fees, books, supplies, and equipment required for a designated beneficiary’s enrollment or attendance at an eligible educational institution
- For an eligible student (enrolled at least half-time) for any academic period, the reasonable costs for that period incurred by the designated beneficiary for room and board while attending the institution
- For a special needs beneficiary, expenses for special needs services that are incurred in connection with the beneficiary’s enrollment or attendance at the institution
- Expenses for the purchase of computer or peripheral equipment, computer software, or internet access or related services if the equipment, software, or services are to be used primarily by the beneficiary during any of the years the beneficiary is enrolled at an eligible educational institution
- Expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school; the amount of cash distributions from all qualified plans with respect to a beneficiary during any tax year can’t, in aggregate, include more than $10,000
- Fees, books, supplies, and equipment required for a designated beneficiary’s participation in an apprenticeship program that is registered and certified with the Secretary of Labor under Section 1 of the National Apprenticeship Act
- Amounts paid as principal or interest on a qualified education loan of the designated beneficiary or a sibling of the designated beneficiary
- Low maintenance – Many plans allow you to select an automatic investment plan so you don’t have to remember to contribute to the plan or reallocate the investments
- Favorable financial aid treatment – When a dependent student’s parent or a dependent student owns a 529 savings plan, it’s reported as a parental asset and has a relatively minimal effect on financial aid eligibility. Distributions from parent- and student-owned accounts aren’t counted as income on the Free Application for Federal Student Aid
- Owner control – The 529 savings plan account owner has legal control of the account funds and can distribute the money as needed to ensure the beneficiary isn’t using the funds for nonqualified expenses
- No income restrictions – You can invest in a 529 plan regardless of how much you earn. Plus, there is usually no minimum to get started
A question we often receive regarding the use of 529 savings plans is related to overfunding the account or the child later deciding not to attend college. There are a few strategies that can be used to help combat these concerns.
It’s important to note that you can withdraw funds penalty-free to the extent the beneficiary’s expenses were reduced due to education tax credits, amount of scholarships, veteran’s education benefits, or other tax-free payments of expenses. You also may withdraw funds penalty-free if the beneficiary goes into the military, becomes disabled, or passes away. In addition, 529 savings plans can generally be used at vocational or other post-secondary institutions in the U.S. as well as many foreign institutions.