529 Plans: Qualified and Non Qualified Expenses

529 Plans: Qualified and Nonqualified Expenses
Presented by Axial Financial Group

You’ve put in the hard work of saving for college, and now it’s time to start using those 529 plan assets to help with a family member’s education-related costs. But before you begin withdrawing those funds, it’s important to understand the difference between qualified and nonqualified expenses.

The charts below provide an overview of some of the most common qualified and nonqualified expenses.

Qualified Expenses

Expense	Requirements		Important Considerations
Tuition and fees		College must be accredited and eligible for the U.S.		Limited to $10,000 per year for K–12
		Department of Education’s student aid program		Some foreign institutions qualify
		K–12 eligible (eligibility varies by state)
		Registered apprenticeship program
Books, supplies, and		College courses only		Items may be purchased
equipment		Must be required for the course		from anywhere (e.g., Amazon)
		Required equipment, including tools for apprenticeship programs		Keep evidence of the requirement (e.g., course syllabus)
Special needs services		College courses only
		Must show a connection to enrollment or attendance
Room and board		College courses only The maximum amount is the greater of either 1) the actual charge for residence in school-operated housing or 2) the annual “financial aid cost of attendance” room and board amount for that school		Must be enrolled at least half-time (credit hours defined by the school) For off-campus housing, contact the school’s financial aid office for applicable cost of attendance amounts
Computers, computer		College courses only		Software should be
hardware, software, and internet access		Must be used primarily by the 529 beneficiary and during years of enrollment		predominantly educational in nature
Repay student loan debt		Principal and interest payments toward qualified education loans of the 529 plan beneficiary or siblings of the plan beneficiary		Lifetime limit of $10,000 for the plan beneficiary and an additional $10,000 per sibling of the plan beneficiary Interest that is paid with
				529 funds will not be eligible for student loan interest deduction

529 Funds to Roth IRA	Beginning in 2024, SECURE 2.0 provides ability to roll unused 529 plans into a Roth IRA if eligibility rules and limits are met		Rollovers are subject to a $35,000 lifetime maximum The 529 plan must have been open for more than
		The recipient Roth IRA	15 years
		must be in the name of the 529 beneficiary	Rollover amounts cannot include contributions to the
		Roth IRA contribution limits and rules still apply, with the exception that the modified adjusted gross income limit is not applicable	Roth IRA (or any earnings on those contributions) within five years of the rollover
		The beneficiary must also have earned income to support the
		Roth contribution

Nonqualified Expenses

Expense	Important Considerations
Transportation and travel costs		Often a concern for out-of-state students Even if for travel to and from campus during holiday times, no travel costs qualify
Health insurance		Not qualified, even for a health plan provided by the student’s school
Extracurricular activity fees		Only tuition costs and fees are qualified; additional activity fees are not
Student loans		Student loan payments in excess of current qualified expense limits
Application and testing fees		Preparatory fees are not qualified 529 distributions are limited to tuition and fees associated with current enrollment

Please note: Just because an expense is nonqualified, it doesn’t mean the 529 plan funds cannot be considered a source of payment. The main consequence of paying nonqualified expenses from the 529 plan is that the gains portion of that distribution will be taxed, and it could be assessed a 10 percent penalty. For more information on 529 plans (referred to as “Qualified Tuition Programs”) and for examples of tax and coordination calculations, see the Qualified Tuition Programs section of IRS Publication 970.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

529 Plans: Qualified and Non Qualified Expenses