What Qualified Costs Do 529 Plans Cover?
529 plans are a great, tax-advantaged way to save for your child’s future college costs.
One of the major benefits of a 529 plan is that when you withdrawal funds for a qualified higher education expense, the money will not be taxed at the federal or state level. So what exactly are 529-qualified higher education expenses? They are the costs involved with attending a federally accredited educational institute to earn a two-year, four-year, graduate or professional degree.
The breadth of what is considered a 529-qualified higher education expense is broad. Eligible expenses include tuition, mandatory fees, computer equipment and related technology and services, books, supplies, and equipment required for enrollment or attendance; room and board costs or off campus housing during any academic period the beneficiary is enrolled at least half-time; and certain expenses for a special-needs student.
What makes an expense qualify? The key is if it is related to enrollment or attendance at an eligible educational institute. For example, tuition is a mandatory expense; books, fees, supplies that are required for classes are necessary cost; and room and board if your beneficiary is living on or off campus is a qualified cost. What are some costs that aren’t qualified higher education expenses? Transportations costs, insurance, fees and equipment which are not required for enrollment, parking tickets, library fines, and payment for student loans.
Thanks to the Protecting Americans from Tax Hikes (PATH Act) of 2015, computers, software, related equipment and internet access expenses, used by the account beneficiary while enrolled in college, are all now considered qualified higher education expenses. Related equipment and software must for educational purposes, not for entertainment. That means gaming systems do not qualify.
As is the case with all college savings 529s, the burden of proof for tax purposes for qualified expenses and withdrawals is on the Account Owner. Please retain all documentation of all 529-qualifed expenses.
If you are wondering how to make a 529 withdrawal to pay tuition or room and board, please read this article. This blog offers some tips on how to be reimbursed from your 529 account for other qualified higher education expenses. If you want to avoid making mistakes on your withdrawal, this blog offers some suggestions.
Posted on September 14, 2016