A 529 plan, also known as a qualified tuition plan, is a tax-advantaged savings plan designed to encourage saving for future education costs. It is sponsored by states, state agencies, or educational institutions. Contributions to 529 plans are not deductible on federal taxes, but earnings in a 529 plan grow federal tax-free and will not be taxed when the money is taken out to pay for college.
There are two types of 529 plans: prepaid tuition plans and education savings plans. Prepaid tuition plans allow one to purchase credits at participating colleges and universities for future tuition and mandatory fees at current prices for the beneficiary. Education savings plans are investment accounts that can be used to pay for qualified education expenses at eligible educational institutions.
What exactly can you buy with the funds from a 529 plan? The IRS designates qualified higher education expenses as acceptable uses for 529 funds. These include:
1. Tuition and fees: Funds can be used for full- or part-time students, and in some cases may even cover costs of enrollment in a foreign institution.
2. Books and supplies: Necessary materials required for classes are covered, including textbooks and essential equipment.
3. Equipment and technology: Computers, software, and internet access qualify if they’re used primarily by the beneficiary during any years they are enrolled at an eligible educational institution.
4. Room and board: If the beneficiary is enrolled at least half-time, you can use 529 funds to pay for their on-campus dormitory or off-campus housing, as long as it does not exceed the room and board allowance included in the cost of attendance as determined by the school, or actual incurred rent and food costs if living off-campus.
5. Special needs services: For beneficiaries with special needs, services required to enroll or attend an eligible institution may be paid with 529 funds.
6. K-12 tuition: Up to $10,000 per year per beneficiary from all 529 plans can be used for tuition expenses at public, private, or religious elementary or secondary schools.
7. Apprenticeship programs: Fees, books, supplies, and equipment required for participation in certain registered apprenticeship programs.
It’s important to ensure that the expenses are necessary components of a beneficiary’s attendance at an eligible institution to avoid penalties. Any non-qualified withdrawals may result in taxes on earnings plus a 10% federal tax penalty on earnings.
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There are two types of 529 plans: prepaid tuition plans and education savings plans. Prepaid tuition plans allow one to purchase credits at participating colleges and universities for future tuition and mandatory fees at current prices for the beneficiary. Education savings plans are investment accounts that can be used to pay for qualified education expenses at eligible educational institutions.
What exactly can you buy with the funds from a 529 plan? The IRS designates qualified higher education expenses as acceptable uses for 529 funds. These include:
1. Tuition and fees: Funds can be used for full- or part-time students, and in some cases may even cover costs of enrollment in a foreign institution.
2. Books and supplies: Necessary materials required for classes are covered, including textbooks and essential equipment.
3. Equipment and technology: Computers, software, and internet access qualify if they’re used primarily by the beneficiary during any years they are enrolled at an eligible educational institution.
4. Room and board: If the beneficiary is enrolled at least half-time, you can use 529 funds to pay for their on-campus dormitory or off-campus housing, as long as it does not exceed the room and board allowance included in the cost of attendance as determined by the school, or actual incurred rent and food costs if living off-campus.
5. Special needs services: For beneficiaries with special needs, services required to enroll or attend an eligible institution may be paid with 529 funds.
6. K-12 tuition: Up to $10,000 per year per beneficiary from all 529 plans can be used for tuition expenses at public, private, or religious elementary or secondary schools.
7. Apprenticeship programs: Fees, books, supplies, and equipment required for participation in certain registered apprenticeship programs.
It’s important to ensure that the expenses are necessary components of a beneficiary’s attendance at an eligible institution to avoid penalties. Any non-qualified withdrawals may result in taxes on earnings plus a 10% federal tax penalty on earnings.
The post appeared first on .