Qualified Higher Education Expenses: What Your 529 Plan Covers
There are many ways to save for your child’s education. From a saving account at your local bank to mutual funds and the stock market, you have a lot of options to meet your investing comfort level. And while there are many ways to save for education, increasingly more parents are choosing 529 plans, like the NC 529 Plan.
These tax-advantaged education accounts are appealing to parents because the earnings grow tax-free if they’re used to pay for qualified education expenses. You may think we’re just talking about college expenses, but NC 529 funds are very flexible and can be used to cover many education expenses.
Student Loan Payments
Using 529 funds for student loan payments is a relatively new benefit for 529 account owners. The change was made at the end of 2019 when the Secure Act became law. Among other things, the law made student loan payments a qualified education expense for 529 accounts. That means you can withdraw up to $10,000 tax-free to repay a student loan. This benefit applies to the account beneficiary and the beneficiary’s siblings.
K-12 and College Tuition
College tuition is a big expense for college students and 529s were specifically designed to help families save for college tuition at eligible institutions. But did you know K-12 tuition is also considered a qualified education expense? Yes! Parents can use up to $10,000 per child, per year to pay for elementary and secondary school tuition at public and private schools. So, from kindergarten to college and graduate school, NC 529 can meet the changing educational needs of your family.
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.
If a student decides to live off-campus in a rented apartment or house, you can still use NC 529 funds to pay for rent, food, and utilities. Just remember to hold onto receipts for those living expenses. Off-campus living expenses are considered qualified education expenses, as long as they don’t exceed what it would cost to live in on-campus housing.
Trade Schools and Apprenticeship Programs
Many successful career opportunities do not require a degree from a four-year university. Trade schools and 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 pay for classes at eligible schools, as long as they are on the Federal Student Aid list.
Technology, Books, and Fees
Many parents plan to give their children a computer for high school graduation. You can use NC 529 funds to cover the cost for their college computer because school-related technology is considered a qualified education expense. Internet access and other technology a student may need to attend school can also be paid for with an NC 529 withdrawal.
Other qualified education expenses that NC 529 funds can be used to pay are books needed for classes and required school fees. However, there are some college-related fees that are not considered eligible education expenses. For example, college application fees, registration fees for the ACT/SAT, and taking college prep courses are all are considered non-qualified expenses. You may need them for school, but if you use NC 529 funds to pay for them, it’s considered a non-qualified withdrawal.
We understand there may be a time when you want to make an NC 529 withdrawal to pay for a non-qualified expense. It’s your money and you have full control over the way it’s spent. However, you will have to pay taxes and penalties on non-qualified withdrawals.
Many students don’t even consider study abroad opportunities during college because they believe it’s too expensive. But NC 529 funds can make studying abroad a reality because the funds can be used to pay for some study abroad expenses. If the international institution is eligible for Title IV federal student aid, you can use a tax-free withdrawal from your child’s NC 529 Account to pay for tuition, fees, books, and room and board. Eligible foreign schools will have a federal school code that can be listed on the Free Application for Federal Student Aid (FAFSA).
One expense that 529 savings plans won’t cover is travel to and from school. So, whether a student is flying to Spain for a study abroad semester or taking the bus home for the holidays, those expenses are not considered qualified educational expenses.
Start Saving for Education With NC 529
While there are many ways to save for K-12 tuition and college expenses, the flexibility of an NC 529 Account means it can meet nearly any educational need your child might have. This knowledge gives parents peace of mind, knowing that you’re planning for the future and making education a priority.
If you’re ready to start saving with NC 529, learn more about our easy enrollment process and start saving today!Go Back to News