10 Ways a 529 Can Be Used

A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education costs. These plans are sponsored by states, state agencies, or educational institutions and offer flexibility and a range of benefits to families aiming to secure their children’s educational future. 

This guide explores not only the domestic uses of a 529 plan but also its applicability to international educational pursuits.

1. Tuition and Fees

The primary use of a 529 plan is to cover tuition and fees at eligible educational institutions. This includes:

• Colleges and Universities: Both in-state and out-of-state, public and private institutions.
• Community College: Community college schools are eligible.
• Graduate and Professional Schools: Including law, medical, and business schools.
• Vocational and Technical Schools: Accredited post-secondary institutions that offer career training and technical education.
• International Institutions: Eligible foreign institutions that participate in the U.S. Department of Education’s Federal Student Aid programs.
  • Tuition and Fees at Foreign Institutions: As mentioned, eligible foreign institutions that participate in the U.S. Department of Education’s Federal Student Aid programs are covered. 
  • Room and Board: Similar to domestic use, room and board expenses can be covered if the student is enrolled at least half-time. This includes both on-campus housing provided by the foreign institution and off-campus housing, subject to the same cost constraints as domestic use.
  • Books and Supplies: Required books and supplies for courses at eligible foreign institutions can also be purchased using 529 plan funds.
  • Travel Expenses: It is important to note that travel expenses, including airfare and local transportation costs, are generally not considered qualified expenses under a 529 plan.

2. Room and Board

529 plans can be used to pay for room and board expenses for students who are enrolled at least half-time. This includes:

• On-Campus Housing: Dormitories and university-owned housing facilities.
• Off-Campus Housing: Rent for apartments and houses, provided it does not exceed the cost of on-campus housing as determined by the institution.
• Meal Plans: On-campus meal plans and off-campus groceries, within the allowance provided by the educational institution.

3. Books and Supplies

Funds from a 529 plan can be used to purchase items necessary for the courses your are taking:

• Textbooks: Required and recommended course books.
• Supplies: Items necessary for coursework, such as notebooks, pens, calculators, and lab supplies.
• Equipment: Including computers, software, and internet access, if required for enrollment or attendance.

4. Special Needs Services

For beneficiaries with special needs, a 529 plan can cover:

• Special Education Costs: Tuition and related expenses for special education schools or programs.
• Adaptive Equipment: Technology and devices needed to accommodate the student’s special needs in their educational environment.

5. K-12 Education

Under the Tax Cuts and Jobs Act of 2017, 529 plans can now be used for K-12 education expenses. This includes:

• Private School Tuition: Up to $10,000 per year per beneficiary for private, public, or religious elementary and secondary school tuition.

6. Apprenticeship Programs

As of the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, 529 plans can be used to pay for registered apprenticeship programs, which must be registered with the Secretary of Labor under the National Apprenticeship Act. Eligible expenses include:

• Tuition and Fees: Costs associated with the apprenticeship program.
• Books and Supplies: Required materials and tools for the program.

7. Student Loan Repayment

The SECURE Act also allows 529 plan funds to be used to repay qualified education loans for the beneficiary and their siblings. This includes:

• Principal and Interest Payments: Up to $10,000 in total lifetime repayment for each beneficiary and their siblings.

8. Transfer to Another Beneficiary

If the original beneficiary does not need the funds, a 529 plan can be transferred to another eligible family member without tax penalties. Eligible family members include:

• Yourself
• Siblings
• Parents and Step-Parents
• Grandparents
• Aunts and Uncles
• Nieces and Nephews
• First Cousins

9. Rollover to ABLE Accounts

529 plan funds can be rolled over into Achieving a Better Life Experience (ABLE) accounts, which are designed to help individuals with disabilities save for disability-related expenses. This rollover is subject to the annual contribution limit of the ABLE account.

10. Rollover to Roth IRA

Under the SECURE 2.0 Act, you now have the ability to rollover a 529 to a Roth IRA subject to eligibility and limitations. 

• 529 to Roth IRA Rollover Eligibility
  • Plan Age: The 529 plan must have been in existence for at least 15 years.
  • Contribution Restrictions: Contributions made within the last five years, including the earnings on those contributions, are not eligible for rollover.
  • Beneficiary Identity: The rollover must be to the Roth IRA of the beneficiary of the 529 plan.
• 529 to Roth IRA Limitations
  • Annual Limit: The amount rolled over in a given year cannot exceed the annual Roth IRA contribution limit, which is $6,500 for individuals under 50 and $7,500 for those 50 and older as of 2024.
  • Lifetime Limit: There is a $35,000 lifetime limit on the total amount that can be rolled over from a 529 plan to a Roth IRA for a single beneficiary.

Conclusion

A 529 plan is a versatile and powerful tool for funding a wide range of educational expenses, both domestically and internationally. Its tax advantages and flexibility in transferring funds or rolling over to other accounts make it an attractive option for families planning for future education costs. Understanding the full spectrum of eligible expenses, including international options, ensures that you can make the most of your 529 plan, providing valuable financial support for your educational goals, no matter where they may lead.