Please note that not all of the investments and services mentioned are available in every state. Therefore, a response to a request for information may be delayed. Raymond James financial advisors may only conduct business with residents of the states and/or jurisdictions for which they are properly registered. Investors should consult a tax advisor about any state tax consequences of an investment in a 529 plan. This and other information about 529 plans is available in the issuer’s official statement and should be read carefully before investing. Investors should carefully consider the investment objectives, risks, charges and expenses associated with 529 plans before investing. Additional details can also be found in IRS Publication 970. Please consult with a tax advisor for specific questions regarding qualified expenses. This is for informational purposes and is not intended to be tax advice. Note that you may need to choose “Foreign Country” as the state. You can look up eligible institutions by using the “Look Up a School Code” resource on the Department of Education’s Federal Student Aid website. About 400 schools outside of the United States are considered qualified. If the beneficiary is attending a foreign school, it must be considered qualified to use 529 dollars without tax or penalty. Note that investors aren’t allowed to “double dip” from a tax perspective by using tax-advantaged 529 funds to pay down student loans and taking a deduction for the interest. Similar waivers are provided for employer-provided assistance and death or disability of the beneficiary.Īs a result of the SECURE Act, 529 plan funds can now be used to pay off student debt – up to a $10,000 lifetime maximum for the plan’s beneficiary, plus up to $10,000 toward each sibling’s lifetime maximum. If you’re able to use the funds for qualified expenses, there will not be any penalty or income tax associated with the withdrawal. This strategy is typically used if other qualified expenses won’t be sufficient to spend the entire account value. In the case of a scholarship, however, you can withdraw the amount of the scholarship without paying the 10% penalty. Normally, if you withdraw money from a 529 plan for a non-qualified expense, you will owe ordinary income tax and a 10% penalty on the earnings portion of the withdrawal. While scholarships aren’t a qualified expense, they do have special tax treatment. This means a student’s car and related expenses aren’t qualified, nor are plane or train tickets associated with studying abroad. Travel expenses to and from school are not considered qualified. However, if the student lives in and/or has a meal plan at the fraternity or sorority house, those expenses can be covered as room and board with the same limitations noted above. While joining a fraternity or sorority can be a beneficial part of a student’s college experience, dues as a whole are not considered a qualified expense. The funds can be used to buy groceries and other meals, so long as proper documentation of the receipts is maintained. Additionally, these expenses are generally limited by the institution’s cost of attendance, which can be found on the school’s website or by contacting its finance department.įor off-campus housing costs, the IRS relies on each school to set the maximum dollar amount to allow for a variance in cost of living around the country.įood expenses and meal plans (which fall within the “board” section of room and board) are a frequent use for 529 savings because of the ease of documentation. Room and board, off-campus housing and food costsĥ29 plans can be used for room and board, off-campus housing and food expenses as long as the student is enrolled at least half-time as defined by the school. Note that this would not include exam fees or materials. However, if a prep course is considered K-12 education, the cost could be considered qualified. Qualified expenses for K-12 education are currently limited to tuition, however – meaning 529 funds can’t be distributed tax-free to cover the cost of computers, homeschooling or other virtual learning tools for K-12 students.Ĭollege entrance exams such as the SAT and ACT are also not considered qualified expenses for 529 plans. In participating states, tuition expenses up to $10,000 per year per beneficiary are considered qualified for an elementary or secondary public, private or religious school.
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