More Than Just Tuition: How Can You Spend 529 Savings?
November 16, 2017
By George DuCasse, senior vice president relationship management at Ascensus College Savings
During 2016, Ascensus College Savings processed over 945,000 distributions that account owners identified as "qualified withdrawals." These are distributions from 529 plan accounts to cover tuition, room and board, and other higher-education-related expenses allowable by Section 529 that qualify for federal tax benefits.1 As the parent of twins in their senior year of high school, I will be joining these ranks next fall.
Over 50% of these qualified withdrawals were for $2,500 or less. This trend suggests that most families are putting their college savings to work in small increments over time, rather than using these savings all at once or for the big ticket expenses, like tuition.
So, what can you use your 529 savings for? As we’ve started finalizing our college spending plan, we’ve realized there is more than just tuition and room and board to pay for. While tuition is a qualified withdrawal expense, and typically the largest one, 529 savings can be used for those other expenses that can really add up and that scholarships often don’t cover.
- Computers: The PATH Act, passed in 2016, made paying for technology expenses, like a computer or tablet, a permanent qualified higher education expense, if such equipment will be used primarily during the years the student is enrolled at an eligible education institution. With many courses allowing digital versions of course materials, using 529 savings to pay for a computer can be a great use of these dollars.
- Books and Supplies: Just like tuition, the cost of books and supplies have risen faster than inflation. In fact, the College Board estimates that the cost of books and supplies for the 2016-17 school year was between $1,230 and $1,390. And while buying digital copies of books has helped, this is still a significant expense for students.
- Fees: Many families are surprised by the number of fees that colleges tack on to tuition costs. The New York Times reports2 that the average fee at a four-year public college was almost $1,700 for the 2015-16 school year. Some courses will have special fees associated with them, other fees are administrative.
- Special Needs: The IRS is somewhat vague on what special needs services are, other than to say qualified distributions "include expenses for special needs services incurred by or for special needs students in connection with their enrollment or attendance."3 One website suggested that expenses related to making a dorm room handicapped-accessible could be a qualified withdrawal.4 You should always check with your financial advisor to be sure what expenses would qualify.
As you get ready to start spending your 529 savings, be sure to take advantage of the resources your child’s college financial aid department has to offer. Ask a lot of questions about what fees are mandatory, which are optional, and what is covered by any aid packages. Helping your children learn how to spend this money wisely is as important as teaching them how to save in the first place.
Source: Ascensus College Savings platform, as of December 31, 2016.
1 The availability of tax or other benefits may be contingent on meeting other requirements.
2 "Those Hidden College Fees." The New York Times, November 6, 2016.
3 Tax Benefits for Education. IRS Publication 970.
4 "Top five ways to spend 529 savings." June 10, 2014.