Qualified Education Expenses
Qualified expenses under a Sec. 529 plan are the costs required for a beneficiary’s enrollment at an eligible higher educational institution (accredited college, university or vocation school) eligible to participate in the student aid programs administered by the Department of Education, and include:
1) Higher Education Tuition and Fees
2) Books, Supplies, Equipment
3) Computers - Sec 529 qualified higher education expenses also include expenses for the purchase of a computer or peripheral equipment (as defined in section 168(i)(2)(B)), computer software (as defined in section 197(e)(3)(B)), and Internet access and related services, if such equipment, software, or services are to be used primarily by the Sec 529 plan beneficiary during any of the years the beneficiary is enrolled at an eligible educational institution. Computer software designed for sports, games, or hobbies is qualified only when the software is predominantly educational in nature. (Sec 529(e)(3)(A)(iii) as amended by the PATH Act)
4) Special Needs Services - Special needs service costs payable from a Section 529 plan include educational expenses specifically related to supporting the education of a student with disabilities. These can cover a variety of educational therapies, such as occupational, behavioral, physical, and speech-language therapies, provided by licensed or accredited practitioners.
5) Room and Board Costs – These expenses are only allowed for a student enrolled at least half-time. The amount of room and board treated as qualified higher education expenses shall not exceed the minimum room and board allowance determined in calculating costs of attendance for Federal financial aid programs under section 472 of the Higher Education Act of 1965 (20 U.S.C. 1087ll) as in effect on August 5, 1997.
The expense for room and board incurred, while living in the educational institution's housing qualifies only to the extent that it isn't more than the greater of the following two amounts(Pub 970 2024, Pg 51):
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The allowance for room and board, as determined by the school, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student.
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The actual amount charged if the student is residing in housing owned or operated by the school. The beneficiary (student) may need to contact the eligible educational institution for qualified room and board costs.
There are proposed regs pending since August 1998 While these proposed regulations have not yet been finalized, the preamble states: “These regulations are proposed to be effective on the date they are published in the Federal Register as final regulations. Taxpayers may, however, rely on the proposed regulations for taxable years ending after August 20, 1996. Programs that were in existence on August 20, 1996, may also rely upon the transition rules provided.” (NPRM REG-106177-97) The proposed regs would add the following limitations if finalized as proposed:
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Living at Home - $1,500 per academic year for a designated beneficiary residing at home with parents or guardians. (Proposed Reg 1.529-1(c) – Definitions (2)(i))
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Other Housing - For all other designated beneficiaries, the amount shall not exceed $2,500 per academic year. (Proposed Reg 1.529-1(c) – Definitions (2)(i)) This type of housing is often referred to by the general term “off-campus housing.”
6) Elementary and Secondary School Tuition Expenses 2018 through July 4,2025 – TCJA added withdrawals for elementary or secondary school tuition expenses but limits the annual withdrawal for each beneficiary to $10,000. This special $10,000 amount applies for tuition paid to public, private or religious schools (IRS Notice 2018-58).
7) Elementary and Secondary School Tuition Expenses Effective After July 4, 2025 - OBBBA increased the amount to $20,000, and expanded the eligible expenses beyond just tuition, including:
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Curriculum and curricular materials,
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Books or other instructional materials,
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Online educational materials,
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Tutoring or educational classes outside the home,
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Testing fees,
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Fees for dual enrollment in an institution of higher education, and
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Educational therapies for students with disabilities.
Elementary or secondary means kindergarten through grade 12 as determined under State law, consistent with the definition applicable for Coverdell education savings accounts.
8) Qualified Postsecondary Credentialing Expenses - Qualified postsecondary credentialing expenses in connection with “recognized postsecondary credential programs” and “recognized postsecondary credentials”. Added by OBBBA and effective after July 4, 2025.
9) Apprenticeship Expenses - for fees, books, supplies, and equipment required to participate in registered apprenticeship programs certified by the Secretary of Labor under Sec 1 of the National Apprenticeship Act, effective for distributions made in years after 2018. (Sec 529(c)(8) as added by the SECURE Act) Industry-recognized apprenticeship programs can be located on the Dept. of Labor’s web site at: https://www.apprenticeship.gov/industry-recognizedapprenticeship-program.
10) Repayment of Student Loans – Effective for distributions after 2018, distributions from a 529 plan of up to $10,000–a lifetime limit–may be used to pay the principal and interest on qualified higher education loans of the designated beneficiary or a sibling of the designated beneficiary. (Sec 529(c)(9) as added by the SECURE Act) To prevent double dipping, Sec 529 plan distributions used to pay interest on the education loan cannot be used for the above-the-line deduction for student loan interest. (Sec 221(e)(1))
Example – George took a distribution of $5,000 from his Sec 529 plan to repay part of his student loan debt. He had never used 529 plan funds before to make a student loan payment. According to Form 1099-Q that he received from the 529 plan, $800 of the distribution was attributable to earnings. Form 1098-E from the lender indicates that $1,200 of the $5,000 loan payment went to interest owed. During the year George did not take any other Sec 529 distributions and didn’t make any other student loan payments. The amount of student loan interest eligible for the above-the-line deduction is computed as follows:
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1.Amount from Form 1098-E, line 1 (total student loan interest paid) $1,200
2.Amount from Form 1099-Q, line 2 (earnings portion of Sec 529 distribution) 800
3.Line 1 less line 2 – student loan interest eligible for above-the-line deduction. 400