Funding a Variety of Costs with 529 Plans
Many clients contribute to a 529 plan with the idea that accumulated savings will one day help pay for tuition at a traditional four-year college. What people may not realize is that this isn't the only possible use of 529 plan savings.
Savings accumulated in a 529 plan account may be used to fund a variety of programs and costs under 529 plan rules. What your clients need to know is whether 1) a particular school is "eligible," and 2) if the types of costs associated with attending that particular school are considered "qualified expenses."
Many Types of Institutions Are Eligible
Eligible higher education programs include thousands of four- and two-year colleges and universities, trade schools, masters and doctoral programs, online schools, and even some foreign institutions. For example, in Canada, more than 100 schools meet the eligibility requirements according to 529 plan rules.1
How to Determine a School's Eligibility
Eligibility is connected with a school's ability to offer students the opportunity to apply for federal financial aid. If you're unsure whether a particular school is eligible, call the institution's administrative office and ask for the federal school code assigned by the U.S. Department of Education.1 All institutions assigned this code are considered eligible according to 529 plan rules.²
Many who save for their children's higher education believe that tuition is the only cost to be concerned about. While tuition is often the biggest cost, it's certainly not the only one involved with sending a child off to college. For the typical four-year college experience, there's room and board, fees, books, supplies, personal expenses, and transportation costs to consider as well.
The good news is that your clients' 529 plan can go a long way toward helping them pay for a variety of college expenses such as certain room and board expenses, books and supplies.
If your clients haven't planned for college costs beyond tuition, you may want to remind them to begin thinking about them now.
The cost of room and board can vary greatly depending upon the college, and whether the student lives on or off campus or commutes from home. For students who live and eat on campus at a four-year college, the average annual cost is $12,900 for private schools, and $11,510 for public schools.3 Some students save on room and board by opting to commute from home instead.
Additional college expenses that often get overlooked in the budgeting process include books and supplies4 (both qualified expenses) which averaged $1,240 per year.3
1 This and additional information may be found on www.FAFSA.ed.gov.
2 IRS.gov, 2020
3 National averages at four-year universities for the 2019-2020 term. Source: The College Board, Trends in College Pricing, 2020.
4 Must be required for attendance at a qualified institution.