The Ultimate List of Qualified 529 Expenses: How to Use Your Funds
529 Plans have been in the spotlight recently, and for good reason. They’re one of the smartest financial moves you can make when saving for education. With the NC 529 Plan, you can save and use tax-exempt earnings for your child’s future college costs.
As an NC 529 participant, your account earnings cover an increasingly wide range of eligible education expenses. Once money is in your account, it can grow tax-free. But before you make a withdrawal, first check that the expense is on the list of qualified 529 expenses.
What Are NC 529 Eligible Expenses?
What’s so important about NC 529 eligible expenses? If you make a withdrawal from your NC 529 Account for non-eligible expenses — like new back-to-school outfits, computer games, or airline tickets for your college student to visit home — you won’t get to reap the tax benefits and you may pay a tax penalty.
The good news: it’s easy to get the tax advantages when you use the funds for 529-eligible expenses — and there are many more than you might think! Let’s get started so you can get the most bang for your buck on your family’s education.
At the top of the list of qualified 529 expenses are college needs, including tuition, student fees, books, supplies, and room and board. That’s not all: If a student lives off-campus in a rented apartment, they can use NC 529 funds for living expenses like rent, groceries, and utility bills! As long as these off-campus living expenses don’t exceed the cost of on-campus housing, they are fair game — just remind the lucky student/tenant to keep all the receipts!
Most college students probably don’t know that 529-eligible expenses also include a laptop (used primarily for school) and even an internet bill. What doesn’t count? Portable Bluetooth speakers, cellphone bills, and other things that aren’t specifically for school. Think of it this way: if an item is mainly for fun or personal use and not for studying, it’s probably not eligible.
2. Career/Technical and Apprenticeship Programs
There’s a big demand for skilled trades in North Carolina. Career/technical programs, like those offered at community colleges, provide great opportunities for degrees or certificates for hands-on careers. They’re also an eligible education expense for NC 529 funds. Trade school programs at North Carolina Community Colleges (NCCC) vary, from culinary arts and carpentry to welding, wind turbine technology, and many more exciting career paths.
Apprenticeship programs, which vary in length from about one to four years, also qualify as 529-eligible expenses! Apprenticeships allow students to earn income while learning a specific trade with the intent to immediately enter the workforce after completing the program.
Important reminder: always make sure that the trade school or apprenticeship program is from an accredited, registered, eligible institution. Otherwise, expenses, such as materials, enrollment fees, etc., may not qualify for a tax-free withdrawal.
3. K-12 Tuition
Are you planning to send your little ones to a tuition-based public, private, or religious K-12 school? Pay for their tuition using your NC 529 Account. Make a tax-free withdrawal for up to $10,000 per year, per child. Keep in mind this expense is limited to tuition, not other school expenses such as supplies.
4. Assistive or Adaptive Learning Equipment
If your child with disabilities and/or special needs uses assistive learning technology or other support services for school, they’ll probably continue to need them in college. Of course, these expenses are also 529-friendly! Examples include adaptive chairs, walkers, assistive software such as text-to-speech devices, intercampus transportation costs, and any other services needed for enrollment or attendance.
5. Eligible Student Loan Payments
One of the more recent additions to the list of qualified 529 expenses is student loan payments. Use your NC 529 funds to repay up to $10,000 in eligible student loans on behalf of a beneficiary or the sibling of a beneficiary.
6. Retirement Savings
Beginning in 2024, up to $35,000 of excess 529 funds can be rolled over tax-free into the beneficiary’s Roth IRA for retirement. There are a few requirements, including that the account must be open for at least 15 years, and the funds you want to roll over must have been in the account for at least five years.
What Are Non-Qualified Expenses?
An example of a non-qualified expense commonly mistaken for qualified is the college application fee. While these fees can add up, they’re not necessarily tied to enrollment in an eligible institution, so NC 529 funds aren’t meant to cover them. Other expenses, such as standardized testing fees, travel to and from campus, and student health fees also won’t qualify for a tax-exempt withdrawal.
Since your NC 529 Account belongs to you, you’re entitled to make a withdrawal and use it toward whatever you want — including non-qualified expenses. Ultimately, it’s up to you. We know financial circumstances can get tough. However, you will have to pay a 10% penalty, federal and state taxes, and a processing fee.
In doubt about whether an expense is qualified and don’t want to risk fully avoidable taxes and penalties on your hard-earned 529 funds? Contact us and ask your questions directly! You can also access other NC 529 Resources to find answers to frequently asked questions.
More Affordable Education is Possible With NC 529
Thanks to its flexibility and lucrative tax benefits, saving with an NC 529 Account is the financially savvy move for many families with current or long-term education goals. Open an account with as little as $25, select a mix of preferred investment options, watch the earnings grow tax-free — and use them to make tax-exempt purchases for anything on the list of qualified 529 expenses.
Got a busy schedule and worried you’ll forget to make consistent contributions? Work with your employer to set up payroll deductions from your paycheck that contribute directly to your NC 529 Account — no calendar reminders needed! Alternatively, you can set up automatic drafts from your financial institution to make regular contributions.
Take the next step and start building toward a more secure financial future for your college-bound family members. If you’re one step ahead and already have an account, why not make a contribution today?