facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast blog external search brokercheck brokercheck
%POST_TITLE% Thumbnail

What Can You Buy With 529 Distributions?

Military Pay and Benefits Investment College Planning

The biggest challenge for students and parents when planning for education are the financial costs; including tuition and academic expenses. While some military families can take advantage of the GI Bill to pay for college expenses, the GI Bill may not be enough for all your children or all the expenses.

Congress recognized that Americans have a challenge when paying for college.  To help with that, they set up special accounts under Section 529 of the Tax Code. These accounts are called 529 plans and distributions are not taxed at the federal level, if used for qualified expenses. You are required to report all 529 spending to the IRS – so it’s important to keep good records and separate qualified and nonqualified receipts. 

Here’s a list of 529 qualified educational expenses and at which institutions you can use 529 funds:

Qualified Education Institutions and Expenses

Timing of distributions from a 529 plan is important. To take advantage of the 529 distribution, you need to submit your request for the cash during the same calendar year in which the expense is incurred. If you withdraw funds in the Fall for the Spring semester you could end up owing taxes and penalties.  To start with, at which schools can you use 529 plan funds?

  1. College or graduate tuition and fees. Post-secondary (after high school) schools that are eligible to participate in the federal student aid program administered by the U.S Department of Education
  2. Vocational and trade school tuition and fees. Culinary students can draw from the 529 account to pay expenses related to culinary institute courses.  The institution must participate in the U.S Department of Education for federal student aid.
  3. K-12 schools, public, private, and religious institutions can now use 529 plan distributions up to 10,000 dollars per student for tuition. 

Lifestyles and Supplies

Sit down with family members and the future student to create a withdrawal plan that works for the student’s needs, the school’s curriculum and the program’s eligibility. It helps everyone to understand how best to use the 529 distributions while establishing a manageable budget for qualified and nonqualified purchases.

  1. Campus housing can be paid through 529 distributions including college room and board fees. Off-campus housing rentals qualify up the same cost of the room and board on campus
  2. Books and supplies including paper, pens, and textbooks required by the specific course are qualified expenses. Schools set the budget limit for books and supplies. You need to check with the school of attendance for the allowable amount each academic year.
  3. Special needs equipment and services qualify for 529 distribution. Students using equipment for mobility (wheelchairs) may be eligible for 529 distribution purchases. Depending on the circumstances transportation may also apply.

Welcoming Technology

The advent of technology has introduced changes to learning methods and academic practices. Computers and some electronics have been added to the list of qualified education expenses as part of the 529 distributions. They must be required as part of the students' study programs. Students need to check with the school about class or course prerequisites that include computers. 

  1. Computers must be used primarily by the student during any of the years the student is enrolled at the eligible educational institution.
  2. Software may qualify as a 529 distribution expense. For example, technical engineering or design classes may involve computerized assignments. 
  3. Internet services can be paid using 529 funds.

Check with the school; there may be specialized expenses as students enter college as a freshman. The same applies as they complete the final years of study, preparing to enter the career world. 

Keep in mind, each state and school may have different restrictions on using 529 funds. If you are unsure about anything, check with your financial advisor or plan provider. They can help develop the best strategy for 529 withdrawals. Withdrawals for other reasons other than education could impose a ten percent penalty.

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.


Disclaimer
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by C.L. Sheldon & Company, LLC ), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from C.L. Sheldon & Company, LLC . To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. C.L. Sheldon & Company, LLC is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the C.L. Sheldon & Company, LLC ’s current written disclosure statement discussing our advisory services and fees is available for review upon request. DISCLAIMER OF TAX ADVICE: Any discussion contained herein cannot be considered to be tax advice. Actual tax advice would require a detailed and careful analysis of the facts and applicable law, which we expect would be time consuming and costly. We have not made and have not been asked to make that type of analysis in connection with any advice given in this blog post. As a result, we are required to advise you that any Federal tax advice rendered in this blog is not intended or written to be used and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS. In the event you would like us to perform the type of analysis that is necessary for us to provide an opinion, that does not require the above disclaimer, as always, please feel free to contact us.