Some of the biggest challenges many face when it comes to education are financial. Luckily, a 529 college saving plan can help. And they’re not just for college anymore! K-12, private and religious schools qualify for tuition eligibility. These funds can also be used for four and two-year colleges, trade schools, graduate programs, and some international institutions.
A 529 plan is a college savings plan that allows individuals to save for college on a tax-advantaged basis.
- State tax treatment of 529 plans is only one factor to consider before committing to a savings plan.
- Find out what fees and expenses are associated with the particular plan and whether a state tax deduction is available will depend on your state of residence.
- State tax laws and treatment may vary. State tax laws may be different from federal tax laws. Earnings on non-qualified distributions will be subject to income tax and a 10% federal penalty tax.
Here’s a list of 529 qualified educational expenses:
Educational Strategy
To take advantage of the 529 distribution for educational costs, you must submit your request for the funds during the same calendar year. If you request cash during the academic year, you may end up owing taxes as a non-qualified withdrawal.
- Higher Education – Post-secondary students (after high school) are eligible to participate in the federal student aid program administered by the U.S Department of Education and qualify for the use of 529 funds.
- Vocational or Trade School – Culinary students can draw from their 529 accounts to pay expenses related to culinary institute courses. The institution must participate in the U.S Department of Education for federal student aid.
- Early Education – K-12 schools, public, private, and religious institutions can now use 529 plan distributions up to $10,000 per student for tuition each year.
Lifestyle and School Supplies
Learning how best to use your 529 distributions while establishing a manageable budget for qualified and non-qualified purchases can be tricky. Here are some tips to keep in mind.
- Housing – Campus housing can be paid through 529 distributions, including college room and board fees. Off-campus housing rentals qualify up to the same cost of the room and board on campus.
- Books and Supplies – Paper, pens, and textbooks required by the specific course are qualified expenses. Schools set the budget limit for books and supplies.
- Needs and Services – Special needs equipment and services qualify for 529 distribution. Students using equipment for mobility may be eligible for 529 distribution purchases. Depending on the circumstances, other modes of transportation may also apply.
Welcoming Technology
Finally, many don’t realize that computers and some electronics are included on the list of qualified education expenses. Keep in mind that these items must be required as part of the students’ study programs to qualify.
- Personal Computer – Computers must be used primarily by the student during any of the years the student is enrolled at the eligible educational institution.
- Software – Software may qualify as a 529 distribution expense, but only if it’s used by the student and required by a class. For example, technical engineering or design classes may involve computerized assignments.
- Internet – Lastly, under certain circumstances, internet services can be paid for using 529 funds. Check with your internet service provider (ISP) for more details.
The above tips are sure to help get you started, but make sure to check with the school as well as chat with your financial professional to learn more. As mentioned earlier, each state and school may have different restrictions on using 529 funds. If you are unsure about anything, your plan sponsor may be able to provide some guidance.
To learn more, contact ISB Investments at 515-288-0111 to connect with one of their SPF Financial Advisors.
Kathy Hooper
Financial Advisor
Sorrento Pacific Financial, LLC
AVP Investments
Iowa State Bank
Call Kathy at 515-244-3413
Patrick Owens
Financial Advisor
Sorrento Pacific Financial, LLC
AVP Investments
Iowa State Bank
Call Patrick at 515-334-7723
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. 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. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. 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. Copyright 2024FMG Suite.
*Non-deposit investment products and services are offered through Sorrento Pacific Financial, LLC (“SPF”), a registered broker-dealer (Member FINRA / SIPC) and SEC Registered Investment Advisor. Products offered through SPF: are not FDIC or otherwise federally insured, are not a deposit or guarantee of the bank, and may involve investment risk including possible loss of principal. Investment Representatives are registered through SPF. The Bank has contracted with SPF to make non-deposit investment products and services available to bank clients.
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