What Can You Buy With 529 Distributions?

WHAT CAN YOU BUY WITH 529 DISTRIBUTIONS?

A 529 college savings plan is a tax-advantaged way to save for education expenses, and it’s not just limited to college anymore. Originally designed to help families save for higher education, these plans can now be used for a wider range of educational expenses, including K-12 tuition, private and religious schools, vocational schools, and even some international institutions. The plan offers flexibility, allowing individuals to use the funds for various educational purposes beyond traditional four-year college programs.

The primary advantage of a 529 plan is its tax benefits. Earnings on the funds grow tax-deferred, and withdrawals used for qualified education expenses are tax-free. However, it’s important to note that each state may treat 529 plan contributions differently, offering different state tax deductions or credits. Additionally, the fees and expenses associated with each 529 plan can vary, so it’s important to carefully compare options before committing.

Qualified expenses for a 529 plan include tuition, room and board for college students, books, supplies, and necessary equipment. For K-12 education, up to $10,000 per student can be used for tuition at public, private, or religious schools. Vocational and trade schools are also covered, as long as the school participates in the U.S. Department of Education’s federal student aid program. Additionally, technology-related expenses like computers and software required for coursework may be eligible for distribution if they are necessary for the student’s study program.

While the 529 plan offers flexibility and convenience, there are restrictions on non-qualified withdrawals. If funds are used for non-qualified expenses, earnings will be subject to income tax and a 10% penalty. To make the most of the plan, it’s essential to plan carefully and stay informed about the rules. Consulting a financial professional or contacting the plan sponsor can provide clarity, and checking with the educational institution is recommended to ensure expenses qualify.

Overall, the 529 plan provides a valuable tool for saving for a variety of educational expenses, helping families manage the rising costs of education while benefiting from tax advantages.

Download PDF to learn more about What Can You Buy With 529 Distributions?

Published On: February 28, 2024|Categories: Resource Center|Tags: , , , , |

Share This Story, Choose Your Platform!

This material is provided for informational purposes only. The information contained herein should not be construed as the provision of personalized investment advice. Information contained herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. Past performance is no guarantee of future results. Investing in the stock market involves the risk of loss, including loss of principal invested, and may not be suitable for all investors. This material contains certain forward-looking statements which indicate future possibilities. Actual results may differ materially from the expectations portrayed in such forward-looking statements. As such, there is no guarantee that any views and opinions expressed in this material will come to pass. Additionally, this material contains information derived from third party sources. Although we believe these sources to be reliable, we make no representations as to the accuracy of any information prepared by any unaffiliated third party incorporated herein, and take no responsibility therefore. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change without prior notice. For additional information about CTS Financial Planning, Inc. and the material posted on this website, please review our Important Disclosures.

Recent Posts

Tags

401(k) aging parents AI alternative energy alternative investments artificial intelligence carbon footprint chicago college education CPI debt environment estate planning Fed financial financial planning financial strategy gifting income tax brackets income taxes Inflation insurance Interest Rates investing investment markets market volatility monthly market update net zero net zero emissions PPI retirement retirement planning risk risk management sandwich generation social security special needs sustainability tariff taxes Trump wealth management wealth transfer women

Archives