7 Qualified Education Expenses You Can Pay for With Your 529 Savings

NC 529 IMAGE Qualified Education Expenses

The exciting news about NC 529 Accounts is that they’re so flexible. The money can be used in a variety of ways so you can take advantage of the tax-free growth on earnings. But sometimes, all those choices can get confusing. We’re here to make using the funds (and saving on taxes) easier for you. Keep reading for our list of qualified education expenses, but first, let’s talk about what counts as a qualified education expense.

What is a qualified education expense?

Basically, a qualified education expense is something that you’re allowed to pay for, without penalty, with funds from your NC 529 Account. Think along the lines of essential needs for education for K–12 tuition, career and technical programs, two-year and four-year colleges, and more.

If it’s something required for school, it’s likely a qualified expense, which means when you withdraw funds from the NC 529 Account to pay for that expense, the withdrawal will be tax-free. If you’re looking for a more official definition of qualified education expenses, page 13 of the program description has all the details you’re seeking.

Here are seven of the most common qualified education expenses you can pay for with your NC 529 Account to get the most out of your tax benefits.

1. College and K–12 Tuition

Tuition will likely be your most expensive education cost, especially as the price of college is likely to continue to increase over the next 10 years. Qualified withdrawals from NC 529 Accounts include tuition for college, K–12 tuition at a public, private, or religious school, and career/technical program expenses. There is a $10,000 annual limit per child for K–12 tuition, career and technical schools must be on the Federal Student Aid list, and apprenticeship programs must be registered with the U.S. Department of Labor or the State Apprenticeship Agency.

2. A computer and associated equipment

Education has to keep up with the digital world, and so does your student. A computer is a necessary piece of equipment for today’s college students. Computers and other needed accessories are qualified education expenses. However, software, apps, and accessories for hobbies, sports, or games are not qualified education expenses.

3. Certain student loans and loan expenses

Withdrawals for student loan payments are also a qualified education expense. Up to $10,000 can be withdrawn without taxes or penalties to repay the beneficiary’s student loans. Additionally, up to $10,000 can also be used for student loans held by each of the beneficiary’s siblings.

4. Room and board

This will also be one of the larger expenses for college. The average cost of room and board can range from around $11,000 to $13,000 per academic year. That’s a cost that will add up quickly over four years. The beneficiary can use NC 529 funds to pay for on-campus housing or an off-campus apartment up to the school’s cost of attendance. This would include rent, groceries, and utilities.

5. Special-needs equipment

Your NC 529 Account can be used to pay for special-needs equipment necessary for a student’s attendance or enrollment at their school.

6. Books and supplies

If your beneficiary is heading to a public four-year college, books and supplies will run about $1,200 a year. It’s another big chunk of the college check, and a very important one, which is why it had to make our list of qualified 529 expenses. In fact, since the 1970s, textbook price tags have risen more than 1,000%. Ouch. Using an NC 529 Account to offset these costs will help your beneficiary immensely.

7. Retirement planning

Starting in 2024, the beneficiary is allowed to roll over up to $35,000 from their NC 529 Account to a Roth IRA without taxes or penalty. This is good news for families who are concerned about over-funding a child’s account. However, the account must have existed for at least 15 years, and no contributions or earnings from the previous five years can be transferred.

A few things that aren’t qualified education expenses.

We’ve spent a good deal of time going over what is qualified, and therefore not taxed or penalized, but there are a few things you should know are taxed. These are called non-qualified education expenses.

  1. College application costs
  2. Health Insurance
  3. Extracurricular activities
  4. College testing fees
  5. Transportation costs
  6. Tutoring (unless required by the institution or prescribed by a doctor)

Withdrawals from an NC 529 Account used to pay non-qualified education expenses are taxed at the beneficiary’s tax rate and could result in a 10% penalty. However, you can use NC 529 Account for non-qualified expenses, as long as you are aware of the tax repercussions.

How to provide expense documentation for withdrawals.

You can make withdrawals for expenses that you’ve paid out of pocket, or you can request a payment that would go directly to the college or university for tuition, etc. Withdrawals need to be made during the same year that the expense was incurred.

To make a withdrawal from an NC 529 Account, simply log in to your account and submit a request online or download and complete a withdrawal form and send it to the plan administrator. You’ll need the beneficiary’s name and Social Security or Taxpayer Identification Number. You’ll be asked whether you’re making a qualified or non-qualified withdrawal, the amount, payee details, and how you’d like to receive the funds.  

Keep records and receipts of all payments. At the end of the year, you’ll receive an IRS Form 1099-Q (issued by the plan administrator) and an IRS Form 1098-T (issued by the institution). If you’ve made a non-qualified withdrawal, you’ll need to report that on your tax forms.

All in all, an NC 529 Account can help with the large expenses for a majority of education and career programs. The earlier one is started, the larger earning potential the account has. For more information or to open an NC 529 Account, request an enrollment kit.

Go Back to News