Should you find yourself in the fortunate situation of having more 529 dollars available than needed, there are several things you can spend those dollars on that you might not have thought of:
- Dual credit high school classes. If your student is taking a dual credit (high school and college) course that requires tuition be paid to a college in order to get the college credit, you can use 529 money to pay for that.
- Room and board allowance for a student who is living at home while attending college. Just as with the off-campus room and board allowance, the school itself sets the allowance for students living at home, so check with your school to confirm the amount before withdrawing from your 529.
- Not just a computer but its related expenses (software, internet access), as long as they’re used primarily for school purposes. (Apartment wifi yes; Call of Duty no.) An iPad or Kindle used for college purposes would qualify as well.
- Off campus living expenses including the room and board portion of fraternity or sorority costs.
- Classes taken online, at a trade school or community college, as long as the school is on the Department of Education’s list of eligible schools.
- International schools (again, check eligibility with the Department of Education).
- In some cases, 529s may be used to pay for some gap year program expenses. Typically this is the case when a gap year program offers college credits in conjunction with a college program, such as Outward Bound’s partnership with Western State Colorado University.
While on the topic, here is something 529 funds cannot be used for: transportation. Whether it’s a car for your commuter student or plane tickets for a student attending school out of state, it’s a no go for 529s.
And if your 529 is overfunded because your student got a scholarship, you don’t pay the penalty on withdrawals of the amount that is overfunded due to the scholarship, only taxes on the gain. If you should find yourself in that position, you can make smaller distributions to your student annually. Just mind the student income protection allowance ($6,570 on the coming FAFSA) if the scholarship is need-based.
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When it comes to dual credit classes and 529 expenses, Is a laptop needed to access the university’s system, 529 eligible if it is predominately for her? Her high school issues iPads, but the course work through the university is not compatible with the iPad. I’ve asked other parents, but have mixed answers. I read through the IRS publication 970, and do not see why we can’t use 529 money for this laptop. Can you add some insight for me? Thanks!
That’s a great question. I would agree with you that you should be able to use it. You should ask the college if your student will get a 1098-T for the college portion of her costs, though, because having that will simplify everything since there will be qualified tuition expenses reported to the IRS on her behalf. The student does not have to be a full-time college student to use their 529 to buy a computer, so based on that it should be OK. I strongly encourage you to withdraw funds for this in your student’s name, though. If you were to be audited and the IRS decided it’s not a qualified expense, the distribution would be taxed to your student. She probably doesn’t have enough income to be liable for any taxes if this were disqualified so the worst case is, she’d have to pay 10% on any earnings on the withdrawal.
Thank you for your reply. One more question. I am the owner of the 529. How would I withdraw it in her name? Or is that designated at the time of dispersment as she is the beneficiary. I’m just concerned that it would turn into her asset for the FAFSA.
Every time you take a withdrawal, you are asked whether you want it to go to the account owner, the account beneficiary, or the college. To have it go to your daughter, choose the beneficiary. I have an online savings account set up for each of my kids and I transfer the withdrawals there. The savings accounts are linked to my checking account, so I just transfer everything into my checking account to pay the bills. Really the only impact of who the distribution goes to is whose SSN is on the 1099 from the plan. There is ZERO chance that having a distribution go to your daughter would result in your 529 account being considered her asset. By definition, a 529 is an asset of the parent. The only way that the money would be reportable as hers on your FAFSA (or Profile) is if you sent the distribution to her bank account and then filed the FAFSA (or Profile) while the money was still in her bank account. So just don’t do that.