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So, you’ve tucked away all this money in a 529 college savings plan account to help your kids pay for school. But there’s this big flashing red warning sign on the internet that says you can only use the money for certain Qualified Education Expenses. Wait a second. Isn’t the cost of college defined by…all the costs of getting through a four-year degree program? Not exactly. So, let’s take a closer look what actually qualifies as an education expense.

A Broad Overview of Qualified Education Expenses

Here’s what the IRS website shows as qualified education expenses:

  • Tuition and fees required to enroll or attend
  • Course-related expenses, such as fees, books, supplies, and equipment that are required of all students for courses

The IRS website then goes on to reveal specific expenses that don't qualify:

  • Room and board
  • Travel
  • Research
  • Clerical help

Wait. Room and board isn’t qualified?

Okay, that statement needs to be qualified.

Room and Board is Definitely a Qualified Education Expense

You can pay room and board from a 529 plan account, but your child has to be enrolled at least half time (as defined by the school). And the cost can’t be more than:

1)      the school’s allowance for room and board included in the “cost of attendance” they use to determine federal financial aid eligibility

2)      the actual amount charged for housing owned or operated by the school

So, let’s translate this from IRS-speak to regular-parents-paying-bills language.

If your kids live in on-campus housing and are on the school’s meal plan, they’re golden. These expenses are qualified.

Now, if your kids live at the Ritz and eat room service every night (or they live in any other off-campus non-school owned property and eat nothing but pizza), then the portion of those costs that meets the above test is qualified. The rest is on your (or your kids’) non-529 plan dime.

Other Interesting Qualified Education Expenses

So, tuition and fees are pretty straightforward. But what about books and supplies?

The required reading on a class syllabus qualifies. The yellow books that help your kid understand those books are not. Neither are pens, pencils and three-ring binders. But that expensive financial calculator needed to perform present value problems probably is.

Fees, books, supplies and equipment (including tools) required to participate in a program registered and certified under the National Apprenticeship Act are qualified education expenses.

The cost of special needs services incurred in connection with enrollment or attendance qualifies. So does a computer and internet access if they’re required to get coursework or complete assignments remotely. A computer used solely for gaming or mining cryptocurrency wouldn’t qualify.

You can use up to $10,000 per year to pay elementary through high school tuition before your young ones get to college. And up to $10,000 can be taken from a 529 plan account to pay the beneficiary’s student loan debt or that of his or her siblings.

The cost of commuting to and from school isn’t qualified. Neither are transportation expenses to and from spring break or holidays with family. Health insurance premiums don’t qualify nor do any expenses for extracurricular activities like fraternity dues. But living in the fraternity house might qualify if the above-noted room and board tests are met.

Where the Money can be Used

Any institution that participates in the federal student aid program is eligible for tuition to be paid out of a 529 plan account. This includes trade schools, vocational colleges, and cooking classes in Bologna Italy as long as they accept federal financial aid.

What to do Next

To see if your college savings plans are on track, use our College Savings Calculator. If you’re ready to open a 529 plan account, Call us at (800) 235-8396. We’re available Monday through Friday, 7:30am to 8:00pm (CT). We’re available Saturdays from 8:00am to 4:30pm (CT).

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We are proud to serve your investment needs. Our Member Service Representatives are available to provide portfolio planning, college savings services and general investment guidance. Please contact us. We’re here to help you find the right investment solutions for you, your family and your future.

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