529 Plans・Best Practices

Opening a 529 plan to save for your child or grandchild’s educational expenses can be a great way to build savings while reaping tax benefits. Some of the benefits of a 529 plan include tax-free growth and tax-free withdrawals if the money is used for qualified education expenses.

What is a qualified expense?

• Full Tuition at any eligible institution including four-year colleges, community colleges, graduate schools, vocational schools, and trade schools
• Room and Board if the student is attending college half-time or more
• Technology Items including computers, printers, laptops, software and internet access required for college
• Books and Supplies (only those that are required)
• Up to $20,000 towards K-12 Qualified Expenses per year per student at a public, private, or religious elementary, middle, or high school (expanded by OBBBA)
• Up to $10,000 Student Loan Debt per borrower over their lifetime
• Apprenticeship Programs (registered with the Dept. of Labor)
• Professional Certifications and Licenses (added with OBBBA)

What is NOT a Qualified Expense?

• Transportation and Travel
• General Electronics and Cell Phones
• Extracurricular Activities including Sports or Fitness Club Memberships
• School Sponsored Health Insurance
• Lifestyle Expenses
• Late Payment Interest

Considerations

1. Scholarships
   If your child receives a scholarship, you can withdraw the like amount of the tax-free scholarship from the 529 plan penalty free and pay income tax on any earnings.
2. Off Campus Rent and Food
   Off campus housing and meal costs are eligible up to the college’s published allowances in their official cost of attendance figures.
3. Foreign Institutions
   Payment to institutions outside of the United States can be complicated. Foreign institutions may not accept checks from 529 plans, especially as those checks are paid out in US dollars. It is recommended to contact the foreign school, discuss payment options, and confirm if they accept checks from US 529 plans in US dollars. Note that owners and beneficiaries can be reimbursed for qualified expenses out of the 529 plan.
4. Timing of Withdrawals
   Reimbursements for college expenses (books, computers, etc.) must be made in the year the expenses are incurred. For example, you cannot submit expenses for 2025 in 2026.
5. Avoid Tax Surprises
   The burden of proof is on the 529 owner so it’s best to keep copies of tuition payment statements and expense receipts in case you get audited. Your state’s definition of qualified expenses may differ. Be aware of potential state tax implications.

For Timely Processing & Accurate Record Keeping

• Segregate qualified expense purchases from those that are non-qualified so that receipts only show eligible expenses.
• Submit tuition and room & board distribution requests at least two weeks prior to their due date.
• Provide a copy of your detailed tuition invoice so we can verify that ineligible expenses are not included (or paid by the 529 plan).

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