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A quick reminder: all growth from earnings and price appreciation in a 529 can with withdrawn tax-free if it is withdrawn to pay for eligible education expenses.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?
- Tuition and fees
- Room and board. If you are living off campus, the max that can be reimbursed is the school listed room & board estimate.
- Technology items, such as computers, printers, software, and internet access
- 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.
- $10,000 worth of annual K-12 tuition, though the same word of caution above applies
What are expenses that do not qualify?
- Transportation, such as travel to and from campus
- Campus parking
- Club fees
- Gym memberships
- Furnishing of a dorm room
- Health insurance, even the policy offered by the school
- 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.