What 529 Plans Can And Can’t Cover


Your kid is not going to college anytime soon, but you still want to be ready for when that day comes. You want to save up as much money as you can so that they can afford all of the expenses attached to the post-secondary experience.

One way that you can do this is to open up a 529 Savings Plan. A 529 Savings Plan is a specialized savings plan designed to help accountholders (usually parents) collect and grow savings for educational expenses. The accountholder must add savings contributions to the plan on a regular basis. A select set of investments should help the account balance grow over time.

A 529 Savings Plan also comes with tax advantages. The contents of the plan develop on a tax-deferred basis, and withdrawals made for educational expenses will not be taxed. In addition, some states may offer tax deductions for 529 account contributions.

So, what can a 529 Savings Plan pay for?

What 529 Plans Can Cover

Beneficiaries of 529 Plans should only use the savings to pay for eligible expenses. If those savings aren’t used for eligible expenses, the withdrawal will face a 10% tax penalty.

So, what are eligible expenses?

  • Tuition and fees
  • Room and board on campus
  • Room and board off-campus (limited to the amount that on-campus room and board would cost)
  • Textbooks
  • Mandatory school supplies (for example, lab safety equipment)
  • Internet service
  • Essential tech like laptops, computers or printers
  • Essential computer software for classes (for example, Adobe Photoshop for design studies)

Savings in a 529 Plan can also be used to pay off outstanding student loans. According to the Secure Act of 2019, beneficiaries can pay up to $10,000 in student loans with the help of this specialized savings plan.

What 529 Plans Can’t Cover

There are plenty of other expenses that come with the college experience, but they are not considered eligible under a 529 Plan. For instance, your kid may need to get a new smartphone while they’re away at college. While some tech is covered under the 529 Plan, smartphones are not — even though a smartphone can arguably be used for educational purposes, like calling administrators and recording course lectures.

What are other non-eligible college expenses?

  • Transportation and travel costs
  • College application fees
  • Fitness club memberships
  • Fees that come with extracurricular activities
  • Health insurance
  • General living expenses (clothing, entertainment spending, etc.)

How Can You Prepare for Non-Eligible Expenses?

You’ll want to be prepared to foot the bill for the non-eligible expenses your kid will face at college. The best way to do this is to have a separate savings account dedicated to these types of expenses. You won’t need to save up as much as in your 529 plan since the non-eligible expenses will be smaller than essentials like tuition, room and board.

Save money in a money market or beneficial savings account. The annual percentage yields (APYs) on these savings accounts will be larger than those on regular savings accounts, which can help your balance increase over time. Additionally, they won’t have limitations on what may be done with withdrawals.

You should also consider building an emergency fund in another savings account. An emergency fund is a liquid reserve of funds that you can draw from whenever you have an urgent, unplanned expense arise — like when a broken smartphone needs to get replaced. Parents can set a fund up so they can resolve emergencies, even for their kids when they’re away at college.

If you don’t have enough in your emergency fund to handle an urgent expense, you don’t have to panic. You could still try to apply for a personal line of credit loan. With an approved loan, you could borrow the funds to cover the expense quickly. So, you can take action if you need money now and make loan repayments later on. You can do this to help your kid get through a rough patch away from home.

A 529 Plan is extremely useful, but it shouldn’t be your only savings plan. You’ll want to have savings for all of the expenses that your kid will face at college.


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