Things 529 Plans Can Be Used for Besides College

A 529 account, also known as a 529 plan, is a tax-advantaged savings plan designed to encourage families to save money for future education expenses. These plans are sponsored by states, state agencies, or educational institutions and are primarily used for qualified expenses related to higher education, such as tuition, fees, room and board, and required books and supplies.

Contributions to a 529 plan are made with after-tax dollars, meaning that contributions are not tax-deductible at the federal level. However, some states may offer state income tax deductions or credits for contributions to a 529 plan. The earnings on investments in the plan grow tax-free, and withdrawals used for qualified education expenses are also tax-free at the federal level.

Many people don’t realize that a 529 plan can be used for more than just a four-year college without incurring taxes and penalties. Here are some circumstances, other than a four-year college, where you may be able to use 529 plan funds for qualifying expenses:

  1. K-12 tuition expenses: Up to $10,000 per year, per beneficiary, can be used tax-free from a 529 plan to pay tuition expenses at a public, private, or religious K-12 school.
  2. Any institution of higher education that receives financial aid: As Consumer Reports states, this “includes community colleges; technical, art, or music schools; vocational and certificate programs; trade schools; and continuing education courses.” You’ll need to research to make sure expenses are incurred at a qualifying school or program.
  3. Study-abroad programs: Many colleges in other countries are eligible to use 529 money. Research to see if yours qualifies.
  4. Apprenticeship programs: Some apprenticeship programs may qualify as eligible educational institutions, allowing 529 plan funds to be used for related expenses.
  5. Student loan repayments: Starting in 2020, 529 plan funds can be used to pay off up to $10,000 of qualified student loan debt for the beneficiary and $10,000 for each of the beneficiary’s siblings.

In addition to the above, thanks to Secure Act 2.0, starting in 2024, if a 529 account has been open for at least 15 years, there are circumstances where you may be able to use 529 plan funds to contribute to a Roth IRA. There is a lot to understand with this strategy and it is still very new, but it is worth considering if you have an older 529 account with leftover funds.

It’s important to note that using a 529 plan for non-qualified expenses can result in taxes and penalties on the earnings portion of the withdrawal. Additionally, it’s always a good idea to consult with a financial advisor or tax professional before making any withdrawals from a 529 plan because each state has its own rules and guidelines for 529 plans. Make sure you understand the specific limitations of your plan before taking any action.

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Elizabeth Young, CFP®

As Partner and Senior Wealth Advisor, Elizabeth Young finds it gratifying whenever one of her clients reaches a long-held goal with her help and guidance. Those “aha” moments drive the work she does for our firm, including serving as the primary financial planning contact for clients and overseeing general client service.