What Can You Pay For With a 529 Plan?

A father and son playing with blocks.     Opening an education savings account, such as an NC 529, while your child is young has all sorts of benefits. One benefit is that it allows the account to build until it’s needed for education. Earnings grow tax-free if the beneficiary uses the money for “qualified education expenses.” That term may sound confusing, but it’s intentionally broad. This is because the fund can pay for many school-related costs, starting with tuition.

College and K–12 Tuition

You’re probably familiar with using 529 funds to pay for college tuition. But did you know the account can be used to pay K–12 tuition at an elementary or secondary, religious or public institution? However, only $10,000 per year may be withdrawn for K–12 expenses. If you’re playing the long game and allowing funds to grow for college, that’s a good choice too. The price of college today has doubled since the 1980s. The funds from a 529 Account can be used to pay tuition at any eligible educational institution nationwide, including community colleges or vocational schools. To find out whether a potential school qualifies, enter the Federal School Code on the U.S. Department of Education website. Tuition only covers enrollment in college courses. If your child is going away for college, they will need a place to live and eat. Living expenses (room and board) can also be paid with a 529 plan.

Room and Board

College students who live in residence halls or other housing run by the school can use 529 funds to pay the cost of their dorm room and school meal plan. Students who decide to live in an apartment off-campus also can use education funds to pay their rent and living expenses. However, for off-campus living expenses to qualify, they cannot exceed the amount charged if the student lived on campus. For example, let’s say university-owned housing at your child’s school is $700 per month. That means $700 is the amount of 529 money considered a qualified living expense for off-campus housing. It will also be up to the student to keep receipts for food and rent, to prove that 529 withdrawals were used for qualified living expenses.

Books, Fees, and Supplies

Unlike high school, where students borrow textbooks for the semester, college students buy or rent their books. Each professor decides what learning materials students need to complete that course. Students can spend $1,200 or more per semester on books alone. There are ways to save money on books. These include borrowing textbooks from the library and comparison shopping online. College fees are anything schools charge students to enroll and attend that school. Fees can add up to hundreds of dollars or more per semester. They can include:
  • Freshman fees — pay for first-year student orientation and support programs
  • Lab fees — pay for courses such as chemistry or engineering
  • Tech fees — pay for campus computer labs and Wi-Fi
  • Athletic fees — pay for recreational facilities
  • Transportation fees — pay for campus bus or shuttle system
  • Health fee — pay for some appointments at campus health clinics
In addition to textbooks, some classes may require other educational materials, such as an art easel and painting supplies for an art class. Those items can be paid for with 529 funds.

Computers and Technology

Investing in a computer for your child to take to college can get expensive! The 529 plan will cover the cost of a computer that’s primarily used by the beneficiary. College funds also cover the cost of school-related equipment, software, and even internet access charges. Sorry kids, computer software used for entertainment, such as video games, is not considered a qualified expense.

Special Needs Equipment

Services and equipment special needs students require to attend college are also considered qualified expenses. Depending on the student’s individual needs, examples can include special technology, a wheelchair, and campus transportation costs. Now you have a better idea of the qualified education expenses that can be paid for with a 529 plan. Remember to save all billing statements and receipts to prove the plan beneficiary used withdrawals for school-related needs. If you have more questions you can visit NC529.org or contact us at 800-600-3453.