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Paying For College – What Is an Eligible 529 Expense and Qualified Distribution?

College Planning
Across the country, students are heading back to colleges in droves.  Or at least will be in the coming weeks.  And with that, the bills from the bursar’s office will start flooding in.  The average cost of one academic year for in-state universities across the nation is $25,615.  For private universities, a student spends on average $53,949/year.  Costs have nearly tripled over the past 20 years.  (Source: EducationData.org)

 

According to Forbes, the balance across all 529 plans hit an all-time high at the end of 2020.  Total plan assets increased 18% to a record high of $394 billion through a combination of contributions and market returns.  The average plan balance also hit a high at $28,679, meaning on average, each person with a plan has saved enough to cover one year of college for their beneficiary (usually a child or grandchild).

 

A quick reminder: all growth from earnings and price appreciation in a 529 can with withdrawn tax-free if it is withdrawn to pay for eligible education expenses.

 

So, what are eligible expenses that can be classified as tax qualified distributions?
  1. Tuition and fees
  2. Room and board. If you are living off campus, the max that can be reimbursed is the school listed room & board estimate.
  3. Books
  4. Supplies
  5. Technology items, such as computers, printers, software, and internet access
  6. Student loan repayments up to $10,000. A word of caution: some states may try to reclaim a tax credit or deduction if used for this purpose.  For example, Indiana does.
  7. $10,000 worth of annual K-12 tuition, though the same word of caution above applies

 

What are expenses that do not qualify?
  1. Transportation, such as travel to and from campus
  2. Campus parking
  3. Cellphones
  4. Club fees
  5. Gym memberships
  6. Furnishing of a dorm room
  7. Health insurance, even the policy offered by the school
  8. College application and testing fees

 

If there is still money left in a 529 plan after your child goes through school, the funds can be used for another family member.  Or (and this is a favorite of mine), it can be used for your child’s eventual children.  In this instance, you would just let it sit as a legacy gift of sorts for your descendants.

 

If you have any questions on college planning or what may qualify as an eligible expense, please do not hesitate to reach out.

About the Author: Alex Perkins

Alex is a Wealth Advisor for WealthPoint Advisors, LLC. After a successful career in management consulting where he helped business executives solve their corporate challenges, he decided to pursue a passion in helping families and individuals on the personal side. Alex now enjoys helping his clients answer their most pressing financial and life questions, through a comprehensive, evidence-based wealth management approach.