529 Plan - Use For Qualified Education Expenses

Use For Qualified Education Expenses

Money from a 529 plan can be used for tuition, fees, books, supplies and equipment required for study at any accredited college, university or vocational school in the United States and at some foreign universities.

The money can also be used for room and board, as long as the fund beneficiary is at least a half-time student. Off-campus housing costs are covered up to the allowance for room and board that the college includes in its cost of attendance for federal financial-aid purposes.

Qualified education expenses do not include student loans and student loan interest.

A distribution from a 529 plan that is not used for the above qualified educational expenses is subject to income tax and an additional 10% early-distribution penalty on the gains portion only unless one of the following conditions is satisfied:

• The designated beneficiary dies, and the distribution goes to another beneficiary or to the estate of the designated beneficiary.
• The designated beneficiary becomes disabled. A person is considered disabled if there is proof that he or she cannot do any substantial gainful activity because of a physical or mental condition. A physician must determine that the individual's condition can be expected to result in death or continue indefinitely.
• The designated beneficiary receives any of the following:
  • a qualified scholarship excludable from gross income
  • veterans' educational assistance
  • employer-provided educational assistance
  • any other nontaxable payments (other than gifts, bequests or inheritances) received for education expenses