Section 529 of the Internal Revenue Code recently celebrated its 30th anniversary. On Aug. 20, 1996, Congress approved new legislation authorizing qualified state tuition programs, now better known as 529s, as part of the Small Business Job Protection Act. This added Section 529 to the Internal Revenue Code.
Much has changed in those 30 years for 529 plans as more and more tax-free qualified distributions have expanded the benefits of saving in a 529. So, as we celebrate September as College Savings Month, let’s look at how flexible a 529 account is now for covering your children’s education after high school.
Not Just for College
There’s a lingering misconception that 529s can only be used at four-year colleges or universities. The truth is that there are over 30,000 higher education institutions at which a 529 account can pay for qualified higher education expenses. Four-year colleges and universities are just one option for an education after high school. The savings in a 529 account can also be used at two-year community colleges, trade/technical/vocational schools, credential or certificate programs, as well as apprenticeships verified by the U.S. Department of Labor. Funds in a 529 account can also pay for qualified graduate school expenses. 529 accounts can be used at any higher education institution nationwide if that institute has a School Code listed with the Federal Application for Free Student Aid (FAFSA).
Qualified Higher Education Expenses
One huge benefit of saving in a 529 account is that it will pay for the beneficiary’s qualified higher education expenses tax-free. And it’s not a small list either; it includes many of the required costs for attending a college or university, such as:
- Tuition.
- Room and board during any academic period in which the 529 beneficiary is enrolled for at least half of the full-time academic workload according to the eligible education institution. Room and board costs can also include rent for off-campus residency —including apartments, homes, and Greek fraternities and sororities houses — and groceries (non-taxable items only), provided these costs are equal or less than the same room and board allowances from the accredited education institution.
- Mandatory fees.
- Computer equipment and related technology as well as internet services.
- Books, supplies, and equipment related to enrollment and class schedule.
- Certain expenses for a special-needs student.
- Qualified apprenticeship costs such as fees, textbooks, supplies, and equipment like required trade tools. The apprenticeship program must be registered with the Secretary of Labor’s National Apprenticeships Act to use a 529 plan withdrawal. Interested parties can check the U.S. Labor Department’s search tool to confirm that a program is registered, and therefore, eligible for a 529 withdrawal.
And that is just the start of the qualified higher education expenses for which a tax-free withdrawal from a 529 account can be made. Here are some additional qualified uses.
K-12 Expenses
529 plans can also pay for certain costs from kindergarten through senior year of high school. In 2018, the federal government added a new 529 qualified expense of $10,000 per child, per year, to be used just for K-12 tuition at public, private, or religious elementary or secondary schools. So, parents could now make a tax-free withdrawal from a 529 account to pay for this K-12 expense.
In 2026, the limit was increased to $20,000 per child, per year, and the tuition-only mandate was removed. New 529 qualified distributions were added, including:
- Curriculum and curricular materials.
- Books or other instructional materials.
- Online educational materials.
- Tuition for tutoring or educational classes outside of the home, but only if the tutor or instructor is not related to the student and is licensed as a teacher in any state, has taught at an eligible educational institution, or is a subject matter expert in the relevant subject.
- Fees for a certain nationally standardized achievement test, advanced placement exam, or college admission exam (e.g. SAT, ACT) tests.
- Fees for dual enrollment in an institution of higher education.
- Certain educational therapies for students with disabilities (e.g. occupational, behavioral, speech-language).
Student Loan Debt
Another qualified distribution is student loan repayment, which was added in 2020. A tax-free 529 withdrawal can be used to pay principal and interest on certain qualified education loans for the beneficiary of the 529 account or any of the beneficiary’s siblings. The loan repayment provisions apply to repayments up to $10,000 per individual. This $10,000 is a lifetime amount, not an annual limit. Withdrawals for student loan repayment can only be made to the 529 account owner or the beneficiary of the 529 account.
Roth IRA rollover
For families who have wondered what will happen to the 529 account if their child doesn’t go to college, this qualified withdrawal went into effect in 2024 to quell any concerns.
Any remaining 529 funds can be rolled over to a Roth IRA for the same beneficiary as the original account. So, if 529 beneficiary doesn’t use all the funds in the account, any remaining 529 funds can jump-start their retirement savings.
- The 529 account must meet some requirements to use this new qualified distribution:
- The 529 account must be open for the beneficiary for 15 years.
- The Roth IRA must be for the same beneficiary of the 529 account.
- Contributions—also called the principal—must have been in 529 account for at least five years before the Roth IRA rollover.
- 529 funds can only be rolled over to the yearly Roth IRA contribution limit, which is $7,500 for 2026.
- The lifetime maximum 529 amount allowed for the Roth IRA rollover is $35,000.
529 tax benefits
Again, 529 withdrawals are tax-free when used for qualified higher education expenses. But there are other tax advantages as well.
All earnings grow tax-free at the state and national level, meaning that all the investment growth is yours to use for your children’s future educational expenses. Compound interest — the interest earned on contributions, earnings, and interest already accumulated in the 529 account — is included in the tax-free earnings. The other benefit is that any Ohio resident — whether the account owner or a gift giver — who contributes to an Ohio 529 account can deduct their contributions from their taxable state income.
The deduction is $4,000 per year, per beneficiary, with unlimited carry forward, which means that $4,000 is not a contribution cap. If an Ohio taxpayer contributes more than $4,000 in one year, they can continue to subtract $4,000 per year, per beneficiary, from their State of Ohio taxable income until all Ohio 529 Plan contributions have been deducted.
Visit Ohio 529 online to start saving today for your child’s future education. An investment in a 529 plan is an investment in your child where every dollar saved today is a dollar that doesn’t have to be borrowed later. Learn, plan, and start with Ohio 529 today at CollegeAdvantage.
