529 Eligible Educational Institutions & Allowable Expenses
I receive many questions over time asking me about what qualifies as an allowable 529 Plan educational expense, as well as the eligibility of certain educational institutions that may be vocational or outside the United States.
Qualified 529 Plan higher education expenses generally allow for?
- Mandatory fees
- Required textbooks, supplies, and equipment
- If used primarily by the beneficiary during the time the beneficiary is enrolled at an eligible educational institution:
- Computer or peripheral equipment
- Computer software
- Internet access and related services
- Room and board during any academic period during which the beneficiary is enrolled at least half-time in a degree, certificate or another program that leads to a recognized educational credential awarded by an eligible educational institution (see below)
- Special needs services for a Beneficiary with special needs
Note: Paying off a student loan is not considered a qualified expense.
Tip: Be sure to retain applicable receipts and documentation to prove your withdrawals were used for qualified expenses in the event of any questions from the IRS.
What is an eligible institution?
Most community colleges, public and private four-year colleges, universities and vocational schools in the United States are eligible educational institutions. Some foreign institutions are also eligible. To find out if a school is eligible, go to the Department of Education’s website. You can use the assets for undergraduate and graduate school as well as specialized training, such as medical or law school.
All 529 plans are designed to pay higher education expenses. Therefore, a withdrawal used for tuition at a private elementary or high school will be subject to federal income tax and a 10% federal tax penalty on earnings.
Be sure that withdraws are taken the same year that expenses are incurred.
Withdrawals taken from your 529 account must match up with the payment year of QHEE for the exclusion to be allowed. If your payment is made in the current year for QHEE due in the first three months of the following year, generally the exclusion is allowed. If you have any questions, talk to your accountant or tax professional or refer to the IRS Publication 970 (PDF).
Example: You may withdraw $1,500 in December for qualified tuition expenses due for the spring semester beginning in January.
Tip: You can help avoid any confusion you do have the option to send the withdrawal proceeds directly to the eligible institution.
College Planning is only one of the services I provide to clients under my Comprehensive Financial Planning Services umbrella. Please contact me at 856-988-5480 or use the link at the top of the web page to request a free consultation to explore how I may be able to bring value to your college planning or any other financial planning related goal and objective.