529 Qualified Expenses & What You Can Spend Your Funds On

NC 529 IMAGE 529 Qualified Expenses

There are many ways to save for your child’s education. From a savings account at your local bank to mutual funds and the stock market, you have a lot of options to match your investing comfort level. While there are many ways to save for education, parents are choosing 529 plans, like the NC 529 Plan, as the top way to save for college.

However, understanding what constitutes 529-qualified education expenses is crucial for families to maximize their education savings. If you save with a tax-advantaged plan, such as NC 529, your earnings can grow tax-free if they’re used for qualified education expenses.

The term “qualified education expenses may sound confusing, but it’s intentionally broad. Well-known examples of qualified education expenses are college tuition, books, and room and board, but there are a lot more! To help families understand which expenses qualify for a tax-free NC 529 withdrawal and which expenses do not, we’ve created a list of education expenses you may not have thought about yet.

FAQ: What Are 529 Qualified Expenses?

529-qualified expenses are educational costs identified by the IRS that are covered under the NC 529 Plan. These expenses are not limited to tuition but encompass a broad range of education-related costs. Understanding what these are ensures that you utilize your NC 529 Account effectively and avoid potential penalties. However, not every higher education expense is covered. Let’s break down some of the most common questions about how an NC 529 Account can be used.

Can NC 529 Funds be Used for College, K–12 Tuition, and Apprenticeships?

You’re probably familiar with using NC 529 funds to pay for college tuition. But did you know the account can also be used to pay K–12 tuition at an elementary or secondary, religious, or public institution? However, only $10,000 per year may be withdrawn for K–12 tuition. The funds from an NC 529 Account can be used to pay tuition at any eligible educational institution nationwide, including community colleges or vocational schools. To find out whether a potential school qualifies, enter the school’s Federal School Code on the U.S. Department of Education website.

Many successful career opportunities do not require a degree from a four-year college or university. Trade schoolsand vocational schools offer the opportunity to pursue a career in dozens of industries with hundreds of career roles in less time. If your student wants a hands-on career, NC 529 funds can be withdrawn tax-free to pay for classes at eligible education institutions, as long as they are on the Federal Student Aid list.

Can NC 529 Withdrawals Be Used for Rent and Off-Campus Housing?

Yes, off-campus housing and rent are considered qualified expenses. If your child decides to live off campus, you can use NC 529 funds to pay for rent, food, and utilities. Keep in mind that these living expenses are qualified if they don’t exceed what it would cost to live in on-campus housing. Retaining receipts for these expenses is crucial for record-keeping.

Can NC 529 Money Be Used for Off-Campus Food?

If your child is going away for college, they will not only need a place to live, but they will also need to eat. After college tuition, living expenses are next on the list for large education expenses. Most college freshmen are required to live in on-campus dorms, so the costs for housing and a student meal plan are easy to calculate because they will appear in lump sums on the student’s college bill. You can make qualified withdrawals from the NC 529 Account to cover those living expenses.

“Can NC 529 be used for off-campus food?” is a common query, as food costs can add up for college students, and the answer is yes. However, the total amount spent on food should not exceed the typical costs of a meal plan offered by the campus. Just remember to hold onto receipts for those living expenses. Off-campus living expenses are considered qualified education expenses if they don’t exceed what it would cost to live in on-campus housing.

Can You Pay Fraternity or Sorority Dues with an NC 529?

Many students enter Greek life in college and wonder, “Can you pay fraternity dues with an NC 529?” or “Can you use NC 529 funds for sorority dues?” Unfortunately, these are examples of non-qualified expenses, which we’ll cover in more detail later in this blog. Costs associated with Greek life, including membership dues or social event fees, do not fall under the umbrella of NC 529-qualified expenses.

Can You Use NC 529 For Study Abroad Programs?

Study abroad-qualified education expenses are covered under an NC 529 Plan, provided the international institution is eligible for federal student aid. However, travel costs to and from the study abroad location are considered non-qualified expenses.

Can You Use NC 529 For Books, Fees, and Supplies?

Yes, these are some of the biggest costs that NC 529 Account holders use their funds to pay, in addition to college tuition. College students can spend $1,200 or more per year on books and supplies, according to the Education Data Initiative.

College fees are anything schools charge students to enroll and attend that school. Fees can add up to hundreds of dollars or more per semester. They can include:

·Freshman fees

· Lab fees

· Tech fees

· Athletic fees

· Transportation fees

· Health fee

Some classes may also require other educational materials, such as an art easel and painting supplies for an art class. Those items can be paid for with NC 529 funds.

What Other Eligible Expenses Will an NC 529 Account Cover?

In addition to all the eligible expenses we’ve covered so far, there are more. You can use tax-free NC 529 withdrawals for special needs equipment and student loan payments (up to $10,000 each for the beneficiary and any siblings).

If there are leftover funds in the account, the participant can roll over up to $35,000 into the beneficiary’s Roth IRA without incurring taxes or penalties. While this is not an expense, it’s a great perk if you’re worried about overfunding the account.

What Happens If I Spend NC 529 Money on Non-Qualified Expenses?

There will be some expenses, such as travel and dorm supplies, that families will need to cover on their own. Technically, you can make non-qualified withdrawals from your NC 529 Account to pay these expenses. However, it’s important to note that you will incur taxes and penalties on those withdrawals. You will have to pay federal and state taxes on the earnings plus a 10% penalty. This underscores the importance of understanding what qualifies as qualified educational expenses under your NC 529 Account.

Save With the NC 529 Plan

The flexibility of the NC 529 Plan makes it an appealing option for saving for various educational needs. Whether your child is attending a traditional college, participating in a study abroad program, or opting for a trade school, the NC 529 Plan can adapt to suit these education paths. There are many ways to use the funds so you can take advantage of the tax benefits.

Understanding NC 529 qualified expenses is key to maximizing the benefits of your NC 529 Account. It ensures that your educational savings are used effectively and aligns with your child’s education journey. Start saving today with our easy enrollment process and begin your journey in securing a bright future for your child.

Ready to start saving for your child’s education with the NC 529 Plan? Open an NC 529 Account today.

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