529 Account Qualified Withdrawals

529 education accounts allow for tax free growth and withdrawals as long as the funds are used for ‘qualified’ education expenses.  What exactly are ‘qualified’ expenses?  Qualified expenses include room and board up to the amount used in the school’s cost-to-attend calculations for federal financial aid or the actual amount charged for school owned or operated housing.  Qualified expenses also include books, supplies and equipment which are required for attendance at the school.  The cost of a computer is only a qualified expense if the school requires that you have your own machine.

Other expenses which are not qualified include insurance, transportation, repayment of student loans and many fees which may be charged to your student but are not mandatory for attendance.  For study abroad courses you can generally take a 529 withdrawal for the amount paid for tuition and books but transportation, currency exchange and international health care costs are not qualified.

When in doubt, we suggest that you check with your accountant before making a withdrawal.  They can advise you about whether or not an expense is qualified as well as other tax related 529 issues such as how using college-related federal tax breaks such as the American Opportunity Tax Credit effect your 529 withdrawal.

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