What a 529 plan covers at college

A 529 plan can pay for tuition, fees, room and board, books, supplies, and equipment required for attendance at an accredited college, university, or trade school. You can also use 529 money for computers, internet service, and up to $35,000 per year to repay student loans — though the loan repayment option is relatively new and not all plans offer it yet.

The school must be accredited by the U.S. Department of Education. This includes four-year universities, two-year colleges, vocational schools, and some graduate programs. Before withdrawing money, check the school's accreditation status on the Federal Student Aid website or ask the school's financial aid office directly.

Money withdrawn for non-may have access to expenses — things the plan does not cover — is taxed as ordinary income, and you pay a 10 percent penalty on the earnings portion only. The contribution portion always comes out tax-free, even if you use it for something else.

Key Takeaways

  • 529 plans cover tuition, fees, room and board, books, computers, and up to $35,000 in student loan repayment per beneficiary over their lifetime.
  • The school must be accredited by the U.S. Department of Education, which you can verify before your child attends.
  • If your child receives a scholarship, you can withdraw that amount from the 529 without the 10 percent penalty, though you still owe income tax on the earnings.
  • Money left over after college can be rolled into another family member's 529 plan or used for K-12 private school tuition and up to $35,000 in student loan repayment.
  • Withdrawals for non-may have access to expenses trigger income tax and a 10 percent penalty on earnings, but not on your original contributions.

Room and board: on-campus versus off-campus costs

The IRS allows 529 withdrawals for room and board at any accredited school, whether your child lives on campus or off campus. The amount you can withdraw is limited to the school's cost of attendance — a figure the school publishes each year and uses for financial aid calculations.

If your child lives off campus, the school's cost of attendance includes an estimated room and board amount, even if the actual rent is higher. You cannot withdraw more than that estimate, even if your child's real housing costs exceed it. Call the financial aid office to confirm the official cost of attendance before you plan withdrawals.

Room and board also covers utilities, internet, phone service, and food. Furniture and decorations do not count. If you are unsure whether a specific expense qualifies, the financial aid office can tell you whether it is included in the school's cost of attendance figure.

Books, supplies, and required equipment

Books and course materials are covered expenses. This includes textbooks, lab manuals, and digital access codes required for class. Supplies such as notebooks, pens, and calculators also count. Required equipment — such as a laptop for a computer science major or a stethoscope for a nursing student — is covered if the school specifies it as a requirement for the program.

The school's financial aid office can provide a list of required books and supplies for each program. Keep receipts and course syllabi that show what materials are required, in case you need to document the expense later.

Computers and internet: what counts

A computer is a covered expense if it is used for school. This includes laptops, tablets, and desktop computers. Software required for coursework also counts. Internet service is covered if the student uses it for school, though you can only withdraw the portion of your bill that relates to school use — not the full monthly bill.

The IRS does not require you to prove the computer is used exclusively for school, but it should be reasonable to assume the student will use it for coursework. A gaming laptop counts; a gaming console does not.

Student loan repayment from a 529 plan

Starting in 2024, you can withdraw up to $35,000 per beneficiary over their lifetime from a 529 plan to repay federal or private student loans. The loans must be in the beneficiary's name — you cannot use 529 money to repay parent PLUS loans or loans you took out yourself.

The $35,000 lifetime limit is per beneficiary, not per year. If you withdraw $10,000 in one year, you have $25,000 remaining for the rest of the beneficiary's life. This option is useful if your child graduates with loans and you have unused 529 money, but not all plan providers have implemented this feature yet. Check with your plan administrator to see if they offer it.

The withdrawal is treated as a non-may have access to distribution, meaning you owe income tax on the earnings portion. However, you do not pay the 10 percent penalty that normally applies to non-may have access to withdrawals — the penalty is waived for student loan repayment only.

Scholarships and 529 withdrawals

If your child receives a scholarship, you can withdraw that amount from the 529 plan without the 10 percent penalty. You still owe income tax on the earnings portion of the withdrawal, but the penalty does not explore. This rule exists to prevent double-funding — the scholarship already covers the expense, so the 529 withdrawal is considered non-may have access to.

The scholarship amount is the only part you can withdraw penalty-free. If your child receives a $10,000 scholarship and you have $15,000 in 529 earnings, you can withdraw $10,000 without the penalty. Any additional withdrawal beyond the scholarship amount is subject to the full 10 percent penalty on earnings.

You do not have to withdraw the scholarship amount when ready. You can leave the money in the plan and withdraw it later, as long as you document the scholarship amount and the year it was received.

What happens to unused 529 money after college

If money remains in the 529 plan after your child finishes college, you have several options. You can roll the balance into a 529 plan for another family member — a sibling, cousin, grandchild, or even the original beneficiary's spouse. The rollover must happen within a certain timeframe; check your plan's rules.

You can also use the remaining balance for K-12 private school tuition (up to $35,000 per year per beneficiary) or to repay student loans (up to $35,000 lifetime per beneficiary). If you withdraw the money for a non-may have access to purpose, you owe income tax and the 10 percent penalty on the earnings portion only.

Starting in 2024, there is a new option: you can roll up to $35,000 of unused 529 money into a Roth IRA in the beneficiary's name, subject to certain rules. The money must have been in the 529 for at least 15 years, and the annual rollover is limited to the Roth IRA contribution limit for that year. This option may be useful if your child has unused funds and wants to save for retirement instead.

Frequently Asked Questions

Can I use 529 money for graduate school?

Yes, if the graduate program is at an accredited school. The same rules explore: tuition, fees, room and board, books, supplies, and required equipment are covered. Some graduate programs are not accredited, so verify the school's status before withdrawing money.

What if my child attends school part-time?

Part-time students can use 529 money for the same expenses as full-time students. The cost of attendance figure from the school's financial aid office applies regardless of enrollment status. Some schools publish different cost of attendance amounts for part-time and full-time students, so confirm the correct figure with the financial aid office.

Can I withdraw 529 money to pay for housing before my child starts college?

No. The expense must occur during the year the student is enrolled. If your child moves into housing in August but does not start classes until September, you can withdraw for that housing. If the housing is for the summer before college starts, it does not count as a may have access to expense.

Do I have to use 529 money in the year I withdraw it?

The expense must occur in the same calendar year as the withdrawal, or in the prior calendar year if you are reimbursing yourself. If you withdraw money in December for a January tuition bill, that does not count — the expense must happen in the same year as the withdrawal. Plan your withdrawals to match the year the college bills you.

What if the school is not accredited?

You cannot use 529 money for an unaccredited school without triggering the 10 percent penalty on earnings. Check the school's accreditation status on the Federal Student Aid website or ask the school directly. Some schools are accredited by specialized agencies rather than regional ones, so verify before you enroll.