Understanding How to Use Funds From a 529 Plan

Are you considering opening a 529 plan for your child’s education but unsure of what expenses are eligible? Look no further! In this blog post, we will break down the different ways you can use funds from a 529 plan to cover education expenses.

The primary purpose of a 529 plan is to provide families with a tax-advantaged account for future education expenses. While most people are aware that 529 funds can be used for college tuition and fees, there are actually many other eligible expenses that you may not be aware of.

Here are some surprising ways you can use funds from a 529 plan:

1. Tuition and Fees: In addition to college expenses, you can also use 529 funds to pay for K-12 expenses and trade or vocational school costs.

2. Room and Board: Most room and board expenses are eligible, but be sure to stay within the college’s specified allowance to avoid penalties.

3. Books and Supplies: Textbooks and required class supplies are qualified expenses.

4. Computers and Tech: You can use 529 funds to purchase computers, software, and other necessary tech equipment.

5. Special Needs Services: Students with special needs can use 529 funds to cover specific adaptive equipment.

6. Student Loan Payments: Thanks to the SECURE Act of 2019, you can now use up to $10,000 from a 529 plan to pay off existing student loans.

7. Study Abroad: If you’re studying abroad through a university-sponsored program, you can use 529 funds for tuition, room, and board.

8. Foreign Schools: You can also use 529 funds to pay for tuition at qualifying foreign universities.

While there are many eligible expenses, there are also some surprising expenses that are not covered by a 529 plan. These include transportation expenses, school-sponsored health insurance, and fees for activities and clubs.

If you find yourself with extra funds in a 529 plan, there are ways to spend the money without penalties. You can change the beneficiary to another family member or use the funds for graduate or professional school expenses.

In the event that you make a non-qualified purchase with 529 funds, you may have to pay taxes and a 10% penalty. However, if you have extra funds and no other immediate use for them, making a non-qualified purchase may be an option.

Overall, a 529 plan is a valuable tool for saving for education expenses, and understanding how to use the funds can help you make the most of this investment in your child’s future.