Planning to Use 529 Funds? Read This.

September 14, 2021  | By Manisha Gupta

By Manisha Gupta, AWM Financial Planning Lead & Candidate for CFP® certification

Investing in a 529 plan can be an effective and easy way to save for college, but when it comes time to spend those funds, there are some important nuances to understand.

After taking distributions from your 529 plan, you will receive a Form 1099-Q from the administrator of the 529 plan at the end of the year, reporting the total withdrawals you made during the year. If the withdrawals were all used to pay for qualified expenses, there is nothing for you to report on your tax return. However, if some of the expenses you used the 529 funds to pay for were not qualified, you would need to report those on your tax return.

Not sure which expenses are qualified for a 529 plan? Here is a breakdown:

  • Tuition and fees: This is a qualified expense for higher education and most institutions are covered. You can look up your institution’s eligibility here. The 2017 Tax Cuts and Jobs Act also expanded 529 savings plans to cover K-12 education for up to $10,000 per year.
  • Room and board: This is a qualified expense if enrolled half-time or more, and if the cost does not exceed the budgeting amount set by the school. If the student is living off-campus, you’ll need to ask the school for its cost-of-attendance allowance for room and board as reported to the U.S. Department of Education. Make sure to document the student’s expenses for room and board up to the school’s allowance.
  • Books and supplies: This is a qualified expense if the cost does not exceed the budgeting amount set by the school.
  • Technology items: You can use a 529 plan to cover technological needs such as computers, printers, laptops and even internet service. These items must be used by the student while enrolled in college.
  • Apprenticeship programs: 529 funds can now be used to pay for the fees, books, supplies, and equipment required to participate in an apprenticeship program that’s registered and certified with the U.S. Department of Labor. You can find more information about registered apprenticeship programs here.
Expenses That Don’t Qualify: Be aware that some common college expenses are specifically categorized as “non-qualified expenses”. These include transportation and travel costs, health insurance, sports and fitness club memberships, and college application and testing fees.
Posted in: College, Tax Planning
Manisha Gupta, CFP®, MBA
(512) 580-4722   |  [email protected]

Manisha is driven by the belief that the future depends on what you do today. Every small step that you take in the right direction is going to lead you towards your goal. She is a firm believer that if…Read More

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