What Are 529 Plan Qualified Expenses for 2025?

by Alex Hillsberg , MA

Student Finance & Loan Expert

Share

Saving for college can significantly increase your child's chances of attending college. According to the College Savings Plans Network, students with college savings accounts are six to seven times more likely to complete a four-year degree. 

529 plans are a popular way to save for college because they offer tax benefits. But before you invest, it is important to understand what these plans cover. If you are thinking about getting a plan, it may be helpful to know the types of 529 plan qualified expenses.

Key Things You Should Know about 529 plan qualified expenses for 2025

• 529 plans grow funds tax-free, and withdrawals for qualified expenses are also tax-free.
• There are two main types: prepaid tuition plans and college savings plans.
• Funds can be used for college, trade school, vocational school, and sometimes K-12 education, although K-12 withdrawal limits apply.
• Non-qualified withdrawals incur income tax on earnings and a 10% federal penalty.

Table of Contents

1. What is a 529 plan?
2. List of 529 Qualified Expenses
3. Are there limitations on how much I can use from my 529 plan for qualified expenses?
4. How do I prove 529 qualified expenses?
5. What happens if I use my 529 plan for something that isn't a qualified expense?
6. Are there any tax benefits associated with using a 529 plan?
7. Pros and Cons of 529 Plans
8. How to Choose the Right 529 Plan
9. How Does a 529 Plan Influence Financial Aid Eligibility?
10. What are the common mistakes to avoid with a 529 plan?
11. What are the differences between 529 plans and other college savings options?
12. Can 529 Plans Be Utilized for Advanced Degree Pursuits?
13. Exploring Alternatives to 529 Plans
14. Can a 529 Plan Help Avoid Needing a Cosigner for Student Loans?
15. Strategies to Combine 529 Plans with Other Financing Options
16. Can a 529 Plan Cover Short-Term or Accelerated Education Programs?
17. Are 529 Plans Ideal for Funding Careers that Only Require a Certificate?
18. Are 529 Plans Suitable for Financing Vocational or Technical Education?
19. Should I Combine My 529 Plan Savings with Student Loans?
20. Can 529 Plans Support Online or Part-Time Degree Programs?
21. Other Things You Should Know About 529 Plan Qualified Expenses 

What is a 529 plan?

529 plans are tax-advantaged investment accounts that are used for education savings. Account holders can have their money invested in mutual funds, ETFs, and more managed by professional investment firms. 529 accounts grow funds tax-free, which means your funds can compound at a faster rate compared to taxable investment accounts. Withdrawals for 529 plan qualified expenses are tax free. 

529 accounts are state-sponsored, but you can get a plan from states other than your own. Some states offer additional tax benefits for residents contributing to their own state's plan.

You can open an account for yourself or for a beneficiary, like a child or grandchild. Research by Hanson shows that 529 plans make up 30% of all savings accounts, which suggests it is one of the most popular ways to save for college.

List of 529 Qualified Expenses

There are two main types of 529 plans, each with different qualified expense items. 

Prepaid tuition plans cover only tuition costs for eligible public colleges and universities. They are designed to keep pace with tuition inflation, so the performance is based on projected future tuition costs rather than investment returns.

For college savings plans, contributions are invested in mutual funds or similar investments. The account value fluctuates based on the performance of the underlying investments, and account holders can use the funds to cover 529 plan qualified expenses apart from tuition. Qualified expenses typically include the following:

Tuition and Fees

With tertiary schools charging an average of $11,260 to $41,540 annually, tuition is a hefty cost for students to bear. This is why many choose to save for college in advance using 529 plans. 

You can use funds from a 529 plan to pay for college, trade school, or vocational school. Parents can also set up accounts to save for their childrens’ elementary and high school education, although withdrawal limits apply for K-12 tuition.

Room and Board

On-campus students pay thousands in room and board, which can add between $3,790 and $4,720 to the cost of a college education. In the absence of online college scholarships, students can use 529 withdrawals to pay for housing expenses like utilities, meals, and rent for on-campus housing. Those living off-campus can also use 529 savings to pay, but not all expenses may be qualified.

Learning Materials and Technology

Required class materials, like textbooks and uniforms, are also 529 plan qualified expenses. You can also use a 529 plan to pay for technology you will use for studying, like a computer or an internet connection. However, not all items may count as a qualified expense. If you want to buy a camera to use for school, it will count as non qualified unless your program requires you to have one.

Student Loan Payments

If you took out a loan to attend school, you can use a 529 to save for student loan debt repayment. Many 529 plans count student loan payments as a qualified expense and allow account holders to put up to $10,000 from 529 savings toward existing private or federal loans. This can be a big help, considering the average American holds about $39,981 in student loan debt.

Foreign Schools

Besides covering payments for colleges that waive out-of-state tuition, 529 plans can also cover the expenses for studying abroad. If you go on a study abroad trip as part of your university program, you can use a 529 account to pay for housing and tuition costs. You can also use your 529 plan to pay for tuition if you enroll in a foreign university, provided it is a Title IV school.

Are there limitations on how much I can use from my 529 plan for qualified expenses? 

The limitations for using 529 funds will depend on the plan you get. As mentioned earlier, there are two plans: prepaid tuition and savings. Prepaid tuition plans can only be used for tuition and related fees, while education savings plans can be used to pay for the expenses we have listed above. The broad scope of education savings plans make them very attractive to investors, as evidenced by a report from the Investment Company Institute. As the chart below shows, there were 15 times more education savings plans than prepaid tuition plans in 2023.

529 plans also come with state-imposed limits. You can invest in any state's 529 plan, not just your own state's plan. Usage and 529 contribution limits will vary depending on the state you get your plan from. However, there are common restrictions on how 529 funds should be used. These include:

• K-12 Expenses. Some states allow a limited portion of 529 plan funds (typically up to $10,000 per year) to be used for qualified tuition expenses at public, private, or religious elementary or secondary schools. However, this benefit is not available in all states.
• Student Loan Repayment. 529 plan holders can put up to $10,000 of their funds towards student loan debt from federal and private lenders.
• Room and Board. You can use a 529 plan to pay for room and board while you are earning your degree. However, the amount you can use is limited to the school's published cost of attendance.

Apart from these, there are generally no restrictions on how you use your 529 funds, so long as the amount you spend does not exceed your account balance.

How do I prove 529 qualified expenses?

Whether you are using your funds to pay for the average community college tuition or to pay for on-campus housing, you will have to keep documentation of your 529 plan qualified expenses. Having thorough records and documentation will protect you from tax penalties if the IRS audits your return and can help you demonstrate proper use of the 529 plan funds. Here are some things you must do when you take money out for a qualified expense:

1. Keep Detailed Records. Save receipts, invoices, and statements that show the expenses were for the qualified costs we have listed above.
2. Obtain Documentation From the School. Request a detailed account statement from the college or university that lists the qualified expenses. This serves as proof that the 529 plan withdrawal was used for eligible costs.
3. Use the 1099-Q Form. When you withdraw money from a 529 plan, the plan administrator will send you a Form 1099-Q that reports the total withdrawal amount. Keep this form with your tax records as proof of the withdrawal.

What happens if I use my 529 plan for something that isn't a qualified expense?

If you use your funds to pay for anything other than 529 plan qualified expenses, earnings on the withdrawn amount will be taxed as income. On top of that, you will also face a 10% federal penalty on those earnings. For example, if you withdraw $5,000 and $1,000 of that represents earnings within the plan, you will owe income tax on that $1,000 and an additional 10% penalty on it, which would total $100.

Considering this, a 529 plan can be a great option for those thinking about how to pay for MBA tuition or college expenses. However, they may not be the best way to save for unrequired expenses.

Are there any tax benefits associated with using a 529 plan?

While 529 plans are a great way to save for college, not many people are aware of how much the extent of the tax benefits they can get from investing their college savings funds. According to a 2020 report by Leung et al., the average family may enjoy a benefit of about $4,044 per child by using 529 plans to save for college.

The tax benefits of a 529 plan are as follows:

• Tax-Deductible Contributions. Depending on your state, contributions to a 529 plan may be deductible from your state income taxes. This allows you to lower your taxable income and potentially reduce your tax bill.
• Tax-Free Growth. Earnings within the 529 plan grow tax-free federally and often state-free as long as the funds are used for qualified education expenses. This allows your money to compound faster, maximizing your savings potential.
• Tax-Free Withdrawals. Withdrawals for 529 plan qualified expenses are typically tax-free on both the contributions and the earnings. This means you can access your savings to pay for education expenses without any additional tax burden.

Pros and Cons of 529 Plans

529 plans are a great option, but they may not be ideal for everyone. Consider these pros and cons if you are thinking about using a 529 plan. 

Pros

• Contributions to a 529 plan are made with after-tax dollars, but the earnings grow tax-free
• Funds can be used for a wide range of 529 plan qualified expenses
• Contribution limits are generally very high
• 529 plans are professionally managed

Cons

• 529 plans typically offer a limited selection of investment options
• Withdrawals for non-qualified expenses are subject to income tax and a 10% penalty on the earnings portion
• Some 529 plans are state-specific, and funds may be limited to use at in-state schools or have reduced benefits if used out-of-state

How to Choose the Right 529 Plan

Because you can sign up for a 529 plan from any state, you must research and ensure you get the best returns. When comparing 529 plans, consider the variety of investments and the skills of their fund managers. It is also important to compare the limits and scope of coverage for qualified expenses.

• Investment Options. Consider the range of investment options available and evaluate the investment performance and fees.
• Fees and Expenses. Compare the annual account maintenance fees, fund expenses, and any other fees associated with the plan. Lower fees can lead to higher investment returns over time.
• Scope of 529 Plan Qualified Expenses. Compare the scope of qualified expenses and spending limits between plans. You may get more mileage out of a plan with wider coverage for things like off-campus room and board and technological study requirements.
• Reputation and Management. Choose a plan managed by a reputable financial institution with a proven track record. Consider plans with experienced investment managers and a stable investment lineup.

How Does a 529 Plan Influence Financial Aid Eligibility?

A 529 plan is evaluated differently in financial aid calculations compared to other asset types. When owned by a parent, these funds are factored into the aid formula at a lower rate than student-owned assets, typically easing the burden on need-based aid assessments. In contrast, assets held in custodial accounts may reduce eligibility more significantly due to higher expected contribution expectations. Additionally, some institutions provide guidance on optimizing asset allocation for financial aid purposes. For detailed support on integrating 529 plans into broader financial strategies, including questions about eligibility and asset management, please refer to the Aidvantage contact number.

What are the common mistakes to avoid with a 529 plan?

• Overlooking plan-specific fees and investment performance metrics that can diminish long-term growth.

• Failing to align contributions with expected education costs, which can lead to insufficient funds or unnecessary surplus if education plans change.

• Neglecting to regularly review and rebalance the investment portfolio in response to market fluctuations, potentially compromising tax-advantaged growth opportunities.

• Misjudging the timing and methods of withdrawals, which may trigger unintended tax consequences or penalties if non-qualified expenses are inadvertently paid.

• Ignoring alternative educational pathways; for instance, evaluating options like a cheap online bachelor degree may provide a more viable or cost-effective solution in certain circumstances.

What are the differences between 529 plans and other college savings options?

While there are many ways to pay for college, most families rely on savings to send their kids to school. According to a 2023 report by Sallie Mae, 72% of students use parent income and savings to pay for their degree. Of these students, 30% use college savings funds, including 529 plans. The chart below compares the usage of other funding methods for postsecondary education. 

Many investors prefer 529 plans because of the tax advantages the offer for college students. However, some students may choose to take another path after graduating from K-12. If you are thinking about other ways to finance postsecondary education, you can also look at other types of savings and investment accounts.

Custodial accounts allow for investment growth with earnings taxed at a lower rate for child beneficiaries. These funds can be used for any purpose and the child gains control upon reaching adulthood. There are typically no contribution limits, but there are no tax benefits for educational expenses.

Taxable investment accounts offer complete flexibility in how funds are used but come with no tax advantages and are taxed annually at the owner's rate. Unlike 529 plans, these accounts are not considered parental assets when determining financial aid eligibility.

Can 529 Plans Be Utilized for Advanced Degree Pursuits?

529 plans extend beyond undergraduate studies and may finance qualified expenses for graduate programs. Funds can be used for tuition and fees in eligible postbaccalaureate education, which sometimes includes professional studies and certain online programs. For example, students pursuing doctorate degrees online can leverage these funds as long as the education provider meets the required standards. This approach allows families to integrate advanced degree financing into their broader financial strategy while maintaining the tax benefits inherent to a 529 plan.

Exploring Alternatives to 529 Plans

Exploring alternatives to 529 plans can help students and their families discover the best ways to meet their unique education financing needs. For example, those interested in specialized career pathways, such as beauty or cosmetology, might require funding options that cater to non-traditional education settings. In such cases, considering a student loan for cosmetology school could be a strategic choice. These loans are specifically designed to suit the financial requirements of vocational or cosmetology school students, where flexibility in savings plans might be less applicable.

Moreover, taxable investment accounts or custodial accounts can also make sense for individuals who want broader use of their savings, as they are not restricted to educational expenses. While these accounts lack the same tax benefits as 529 plans, their flexibility often serves those unsure about committing funds solely to tuition costs. Therefore, before deciding on a college savings strategy, you must carefully assess both your short- and long-term objectives.

Can a 529 Plan Help Avoid Needing a Cosigner for Student Loans?

By building a robust 529 plan, families can potentially minimize reliance on student loans that may require additional financial backing. An adequately funded 529 account can reduce the need to borrow by covering significant portions of tuition and related qualified expenses, thereby stabilizing overall education financing. This approach not only decreases debt accumulation but also alleviates the necessity to navigate strict cosigner for student loans requirements, which often involve detailed credit evaluations and additional paperwork. Emphasizing proactive savings can ultimately offer a more sustainable path to educational funding.

Strategies to Combine 529 Plans with Other Financing Options

Leveraging multiple financial resources can optimize funding for higher education, particularly when paired strategically with a 529 plan. For instance, while 529 plans offer tax-advantaged savings for qualified education expenses like tuition, room and board, and learning materials, they can be complemented by other funding strategies for non-covered or ancillary costs.

Parents and students should consider supplementing their 529 plan with scholarships, grants, and federal aid to reduce the burden on the account. For example, if a 529 plan falls short of covering essential living expenses, exploring student loans for living expenses can bridge the gap effectively. These loans are often tailored to cover costs like rent, groceries, and commuting, allowing families to use their 529 savings primarily for tuition or other prioritized categories.

It's also crucial to plan withdrawal timings accurately to maximize your tax benefits while avoiding unnecessary penalties. By combining resources like 529 plans and loans in a calculated manner, families can mitigate out-of-pocket costs and improve long-term financial stability.

Can a 529 Plan Cover Short-Term or Accelerated Education Programs?

While 529 plans are commonly used for traditional degree paths, they can also support short-term or accelerated programs when these programs qualify under educational guidelines. Some programs, including certain online accelerated formats and certifications, may be eligible if they meet Title IV requirements. For instance, investing in a 6 month degree course that leads to a recognized qualification can be permissible, provided the institution is accredited and the program aligns with federal standards. Understanding the eligibility criteria and proper documentation is crucial for ensuring that withdrawals remain tax-advantaged and free from penalties.

Are 529 Plans Ideal for Funding Careers that Only Require a Certificate?

Financial planning for education should align with the anticipated career trajectory. While 529 plans offer significant benefits for degree-based paths, certification programs generally command lower tuition and fewer ancillary living costs. Prospective students targeting jobs that only require a certificate may benefit from tailored savings strategies that address the distinct expense profile and shorter duration of such programs. Evaluating the total cost of a certification against potential tax-advantaged growth can help clarify whether a 529 plan is the optimal tool for achieving specific career and financial objectives.

Are 529 Plans Suitable for Financing Vocational or Technical Education?

While 529 plans are often associated with traditional four-year college expenses, they also offer flexibility for vocational and technical training. Vocational programs generally have lower tuition costs and shorter durations, making it essential to align contributions with their unique fee structures. Strategic budgeting paired with an optimal withdrawal plan can help ensure that funds cover program-specific expenses without compromising the tax advantages. For detailed insights into alternative career paths, explore what careers can you go to trade school for.

Should I Combine My 529 Plan Savings with Student Loans?

While 529 plans offer definite tax advantages for covering many qualified education expenses, they may not bridge the full gap between available funds and rising costs. Integrating student loans as a supplemental resource can provide additional flexibility without compromising long‐term financial strategy. When exploring this combined approach, assess the remaining education costs, understand borrowing terms, and consider the impact on future financial stability. For guidance on complementing savings with borrowing options, review how to take out a student loan. Meticulous evaluation of both funding methods can help tailor an education financing plan that balances immediate cash flow with long-term repayment considerations.

Can 529 Plans Support Online or Part-Time Degree Programs?

Modern education pathways increasingly include online and part-time degree options that meet federal standards. When these programs are offered by accredited institutions and qualify for Title IV aid, 529 plan funds may be used to cover tuition and related costs. This flexibility enables working professionals to pursue advanced studies without compromising their full-time careers. For further insights on balancing work and education, consider exploring affordable online colleges for earning a degree while working full-time. It is essential to verify that the selected program meets the specific criteria for 529 plan withdrawals to maintain the associated tax advantages and avoid penalties.

Key Findings

• 529 plans constitute 30% of all savings accounts.
• A majority (72%) of students use parent income and savings, with 30% using 529 plans.
• There is a $10,000 annual limit for K-12 tuition and a $10,000 limit for student loan repayments.
• Families may save about $4,044 per child using 529 plans to save for college.

Here's What People Have To Say About Their 529 Plans

"My wife and I are still paying off our student loans, but thanks to the 529 plan, we can breathe a little easier knowing our kids' college education is on track. The tax advantages definitely helped us stretch our savings further." - Brian

"Thanks to my 529 plan, I graduated debt-free from medical school. My parents started the plan when I was little, and the funds helped cover a huge chunk of my expenses." - Sarah

"Putting our kids’ college funds in 529 plans was one of the best investments we have made as parents. Two are heading to college soon and we have peace of mind knowing we had a dedicated savings plan for their education. - Ameya

Other Things You Should Know About 529 Plan Qualified Expenses 

What happens to 529 if child doesn’t go to college?

If you or your beneficiary does not plan to attend college, you can use 529 funds to cover a portion of K-12 tuition. Many 529 plans also count vocational or trade school tuition as 529 plan qualified expenses. You can also withdraw funds for non-qualified expenses, but the money will be subject to income taxes and a 10% penalty on the earnings portion of the withdrawal.

How much should I be saving in my 529 plan each year?

Student aid experts recommend saving at least $300 a month in a 529 plan and adjust the amount based on what kind of school your beneficiary will attend. About $300 a month would work for students aiming to attend an in-state public college. In comparison, those aiming to attend private, non-profit, four-year colleges should contribute at least $650 per month.

Are there limitations on how much I can contribute to a 529 plan?

Contribution limits for 529 plans vary by state. While there is generally no limit on how much you can use from the plan for qualified expenses, there are restrictions on how much you can contribute each year. These contribution limits can be quite high, often ranging from $15,000 to $30,000 per year per beneficiary.

References:

• College Savings Plans Network. (2023, June). Total Assets in 529 Plans Nationally [PDF]. College Savings Plans Network. Retrieved July 1, 2024, from https://www.collegesavings.org/wp-content/uploads/2023/09/NAST23-035666-01-Mid-year-Infographic.pdf 
• Gravier, E. (2023, July 21). How Much To Contribute To A 529 Plan Each Month. CNBC. Retrieved July 1, 2024, from https://www.cnbc.com/select/how-much-to-contribute-529
• Hanson, M. (2024, March 3). Student Loan Debt Statistics [2024]: Average + Total Debt. Education Data Initiative. Retrieved July 2, 2024, from https://educationdata.org/student-loan-debt-statistics
• Hanson, M. (2024, May 28). Average Cost of College [2024]: Yearly Tuition + Expenses. Education Data Initiative. Retrieved June 30, 2024, from https://educationdata.org/average-cost-of-college
• Leung, M., Wendel, S., & Kreamer, P. (2020, April 1). The Financial Impact of Not Using 529 Plans, and Behavioral Interventions to Increase Usage. Financial Planning Association. Retrieved July 1, 2024, from https://www.financialplanningassociation.org/article/journal/APR20-financial-impact-not-using-529-plans-and-behavioral-interventions-increase-usage