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One of the main advantages of a 529 plan is the ability to grow your education savings tax-free. Those tax benefits also apply once you begin withdrawing from the account as long as the funds are used toward eligible expenses.

Since non-qualified withdrawals are taxed as ordinary income to the extent of earnings and may also be subject to a 10% federal income tax penalty, the following list of qualified expenses can help you avoid paying unnecessary taxes and ensure you’re using your hard-earned savings as efficiently as possible.

One

Postsecondary education tuition – Whether your child elects to attend a public or private college, community college, or an accredited trade or vocational school after graduation, your 529 savings plan funds can be used toward tuition as long as the school is eligible for federal student aid. The same is also true for graduate school and even some schools abroad.

Two

Living on or off campus – As long as your child is enrolled in a degree or certificate-seeking program at least half time according to the school’s guidelines, his or her room and board on campus is considered a qualified expense. For those living off campus, the cost of rent and utilities up to the school’s allotment is considered qualified, but any amount above the allowance could be subject to taxes.

Three Groceries – This also applies to those living off-campus. Food expenses up to the cost of an on-campus dining plan can be covered by 529 funds, but the tax advantage only applies to necessities—not dining out or entertainment costs. It’s best to confirm with your child’s school each year to be clear about acceptable amounts.
Four

Academic fees – Students may need to pay fees in addition to tuition, such as technology or lab fees, and can use their 529 plan funds toward them. However, activity fees for sports or organizations are not eligible.

Five

Books and supplies – In addition to textbooks and class-specific materials, school and office supplies, such as notebooks, pens, pencils, etc., are also covered by 529 funds.

Six

Computers – Technology is critical for learning today, and if the school doesn’t supply your student with a laptop or desktop computer, purchasing one on your own is considered a qualified expense. This benefit also extends to peripherals such as printers.

Seven

Specialized software – In addition to hardware, educational or professional programs required to complete coursework count as a tax-advantaged 529 expense. For example, if your child is completing a graphic-design degree, his or her specialized design software would be eligible.

Eight

Internet access – It’s the internet age, so that computer and software won’t get your child very far unless they can get connected. Students who live off-campus and aren’t on the school’s network can use 529 funds for internet service. However, beware of bundling: cable and phone costs may not be covered.

Nine

K–12 schooling – 529 funds aren’t just for big kids anymore. You can now use up to $10,000 of 529 money per student each year toward private or religious K–12 tuition in most states (it’s best to check with your home state first to be sure they’ve aligned with the federal tax change).

Ten

Student-loan repayment and apprenticeships – In 2019, tax reform expanded the use of 529s to allow for funds to be used for qualified student-loan repayments (with a maximum lifetime limit of up to $10,000) as well as qualified apprenticeships and associated fees.†

 

A 529 plan can be used for:

  • Colleges and universities
  • Trade and vocational schools
  • Apprenticeship programs†
  • K-12 tuition

† West Virginia state code does not provide for the inclusion of Apprenticeship Programs as a Qualified Higher Education Expense. This means under current law, earnings associated with distributions for these programs would be subject to West Virginia tax but exempt from Federal tax. Consult
a tax advisor for further information.

* If using a 529 plan for K–12, it can only be used for tuition up to $10,000 per year.

Source: IRS, 2021

Qualified Education Expenses:

  • Tuition and fees
  • Room and board
  • Books, supplies, equipment
  • Expenses for special needs
  • Computers, software, and Internet
  • Student Loans**

** Can be used for student loan repayment for a maximum lifetime limit of up to $10,000

Talk to your financial professional to make the most of a 529 plan.

 

Sources: Hartford Funds, IRS.gov, and savingforcollege.com, 5/21

This material is provided for educational purposes only.

Before investing, an investor should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s 529 plan.

For more information about any 529 college savings plan, contact the plan provider to obtain a Program Description, which includes investment objectives, risks, charges, expenses, and other information; read and consider it carefully before investing. Hartford Funds Distributors, LLC serves as distributor and underwriter for some 529 plans.

CCWP055 223713

The material on this site is for informational and educational purposes only. The material should not be considered tax or legal advice and is not to be relied on as a forecast. The material is also not a recommendation or advice regarding any particular security, strategy or product. Hartford Funds does not represent that any products or strategies discussed are appropriate for any particular investor so investors should seek their own professional advice before investing. Hartford Funds does not serve as a fiduciary. Content is current as of the publication date or date indicated, and may be superseded by subsequent market and economic conditions.

Investing involves risk, including the possible loss of principal. Investors should carefully consider a fund's investment objectives, risks, charges and expenses. This and other important information is contained in the mutual fund, ETF or closed-end interval fund prospectus or summary prospectus, which can be obtained from a financial professional and should be read carefully before investing.

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