How to use 529 plan funds to pay for college

Take advantage of your 529 account

Ready to use your 529 account funds to pay for college? Here’s what you need to know.

Just like your 529 savings account has rules around how you save, it also has rules around how you use the funds to pay for college. Before you tap into your 529 account for the first time, you’ll want to know how to withdraw and use your funds without getting hit with tax penalties. We called in an expert to break down what you need to know. Peg Creonte is President of Government Savings at Ascensus College Savings, which specializes in 529 plans.

What expenses can I pay for with my 529 account?

If you thought your 529 account only covers tuition, think again.

“529 plans cover a wide variety of education-related expenses, including tuition, mandatory fees, books, computers, certain room and board costs, and even equipment that may be required for enrollment or attendance,” says Peg.

You generally won’t pay federal and state taxes on the money you withdraw from your account when you use it for these “qualified” expenses, according to IRS. So, if your designer-in-training needs Adobe software and a printer, your 529 account can cover it.

Most 529 accounts can also cover an off-campus apartment if your future freshman isn’t living in a dorm, but the cost of off-campus housing must be comparable to the on-campus costs. Check with your 529 provider if your student plans to live off-campus.

What doesn’t count as a qualified expense?

“529 plans don’t cover things like travel costs or fraternity and sorority fees,” Peg says. “But the vast majority of expenses are covered. As long as you’re using your 529 plan funds for qualified expenses, you shouldn’t encounter any unexpected fees or penalties after you withdraw from your 529 account.”

If you have any questions about whether an expense qualifies, reach out to your plan provider directly. It’s better to ask now than get hit with tax penalties later.

Although you don’t need to report your expenses to your 529 plan provider, keep your receipts in case the IRS audits you.

Can I pay right from my 529 account?

Chances are, no.

“Only a few schools offer the capability to transfer funds directly from your 529 plan,” says Peg. “In most instances, you’ll need to withdraw the money and then pay.”

Check with your plan provider and your student’s college to see what they allow.

Can I keep contributing to my 529 account while my student’s in school?

“Absolutely!” Pegs says. “Parents can keep contributing money to their 529 as their child advances through school. Again, circumstances are different for different families. Some families continue to save for graduate school. 529 plans are so flexible in their usage that some families choose to integrate a 529 into their savings plan even as their beneficiary ages past college.”

There’s one important thing to remember if you keep saving—529 accounts are long-term savings vehicles. The money you contribute now may not yield a big return if you plan to use it in the next year.

Any last things I should know about withdrawing 529 funds?

Make sure to pay attention to when you pay for college expenses.

“Be certain that the expense is paid for in the same year you take the distribution to ensure you don’t incur tax penalties,” Peg says.

And that’s it. The other stuff—like how much of your funds you use each semester—is up to you. Do what makes sense for your family and remember to take a moment to be proud of all your hard work and planning. After all, helping your child get a college education is what you were saving for!