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529 Plan Uses?

By Mary Anne Busse
Managing Director, Great Disclosure LLC
February 8, 2013

So, you want to save for college and you’re trying to figure out the right way to do it.  You’ve learned about 529 Plans and want to have a better understanding of what you can use the funds in your account for.  Look no further.  In this post, we’ll give you the 411 on what to do with all that money in your 529 Plan account.

Qualified Higher Education Expenses

In order to encourage saving for college, Section 529 of the Internal Revenue Code allows taxpayers to save for college in a tax-advantaged way.  Section 529 generally allows you to use funds in your account for Qualified Higher Education Expenses (as defined in the Internal Revenue Code and described in Publication 970[1] issued by the Internal Revenue Service) without being taxed on any of the income earned on your account.


OK.  So, what is a Qualified Higher Education Expense?  According to Section 529, these are:

1.    Tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution (we’ll talk about what that is in a later post).

2.    Expenses for special needs services in the case of a special needs beneficiary which are incurred in connection with enrollment or attendance at an eligible educational institution.

3.    Expenses for room and board incurred by students who are enrolled at least half-time

Publication 970 tells us how much we can deduct as room and board:  “The expense for room and board qualifies only to the extent that it is not more than the greater of the following two amounts.

a. The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student.

b. The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution.”

Say room and board set by the university is $2000 per semester, but your child pays $2500 per semester for room and board.  According to Publication 970, you could include the full $2500 as Qualified Higher Education Expenses.  It’s important to note that you should contact your student’s school to obtain the qualified room and board costs.  Also keep all of your receipts handy for proof of your expenses when preparing your tax returns.

So, what’s included in the category of room and board?  We’ll talk about that in a later post!  For comparative information on the 529 Plans offered across the country, check out our comparison tool. 

[1] Publication 970 for use in preparing 2011 Returns.  Publication 970 for use in preparing 2012 Returns is not yet available.


About the Author:

Mary Anne Busse is the Managing Director of Great Disclosure LLC, a full service consulting firm dedicated to the 529 Plan marketplace.  Great Disclosure represents 529 Plan administrators on all aspects of 529 Plan administration, marketing, and operations.

2 comments:

  1. When a student must live off campus how do we figure the amount we can use for housing?

    ReplyDelete
  2. You should contact the Financial Aid Office of the school where the student attends to begin the process of determining what eligible housing expenses would be.

    ReplyDelete

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