Broker Check

529 Educational Accounts – Qualified Expenses

| September 21, 2021

529 Plans allow you to invest after-tax dollars for long-term tax-free growth in order to for pay qualified educational distributions.  Recent changes to the tax law now allow 529 Plans to be used for certain K-12 expenses in addition to previously allowed college/university or vocational school expenses.

However, the types of qualified expenses allowed for each institution vary and it is important to understand not only the specific guidelines for each type of expense but also the state specific rules and limits as well.

In general, qualified educational expenses for college include tuition and fees, books/supplies/computers, and certain room and board expenses. But, for K-12 expenses certain states may limit qualified educational expenses to just tuition with a $10,000 cap per beneficiary per year. However, money used for K-12 expenses will not be available to cover expenses for college, university, or vocational schools.

So, while recent tax law changes have expanded the distribution rules for 529 Plans, we always recommend a thorough review of your long-term savings goals and savings plan. One of the main benefits to the 529 Plans is long-term tax-free growth so, in theory, having a longer time horizon should yield the greater tax benefit.