So, you’ve tucked away all this money in a 529 Education Savings Plan account to help your loved ones pay for education. But there’s this big flashing red warning sign on the internet that says you can only use the money for certain Qualified Education Expenses. Wait a second. Isn’t the cost of college defined by…all the costs of getting through a four-year degree program? No. Not exactly. So, let’s take a closer look at what actually qualifies as a Qualified Education Expense.
A Broad Overview of Qualified Education Expenses
Here’s what the IRS website shows as qualified education expenses:
- Tuition and fees required to enroll in or attend an eligible educational institution, including graduate school
- Course-related expenses, such as fees, books, supplies, and equipment that are required of all students for courses
The IRS website then goes on to reveal specific expenses that don't qualify:
- Travel
- Research
- Clerical help
Room and Board is a Qualified Education Expense
You can pay room and board from a 529 Plan account, but your loved one has to be enrolled at least half time (as defined by the school). And the cost can’t be more than:
1) the school’s allowance for room and board included in the “cost of attendance” they use to determine federal financial aid eligibility
2) the actual amount charged for housing owned or operated by the school
So, let’s translate this from IRS-language to regular-people-paying-bills language.1
If your loved ones live in on-campus housing and are on the school’s meal plan, they’re golden. These expenses are qualified.
Now, if your loved ones live at the Ritz and eat room service every night (or they live in any other off-campus non-school owned property and eat nothing but pizza), then the portion that does not meet the criteria above is not qualified. Only the portion that does meet the criteria counts as Qualified Education Expenses.
Other Interesting Qualified Education Expenses
So, tuition and fees are pretty straightforward. But what about books and supplies?
The required reading on a class syllabus qualifies, but pens, pencils and three-ring binders do not. On the other hand, that expensive financial calculator needed to perform present value problems does qualify.
Fees, books, supplies and equipment (including tools) required to participate in a program registered and certified under the National Apprenticeship Act are qualified education expenses.
The cost of special needs services incurred in connection with enrollment or attendance qualifies. So does a computer and internet access if they’re required to get coursework or complete assignments remotely.
You can use up to $10,000 per year to pay elementary through high school tuition before your loved ones get to college. And up to $10,000 can be taken from a 529 Plan account to pay the beneficiary’s student loan debt or that of his or her siblings.
The cost of commuting to and from school isn’t qualified. Neither are transportation expenses to and from spring break or holidays with family. Health insurance premiums don’t qualify nor do any expenses for extracurricular activities like fraternity dues. But living in the fraternity house might qualify if the above-noted room and board criteria are met.
Where the Money can be Used
Any institution that participates in the federal student aid program is eligible for tuition to be paid out of a 529 Plan account. This includes trade schools, vocational colleges, and cooking classes as long as they accept federal financial aid.
What to do Next
To see if your college savings plans are on track, use our Education Savings Calculator.
If you have any questions, call one of our live U.S.-based investment specialists.
1This is not tax advice and a person should consult a qualified tax advisor for specific questions about what expenses qualify.
