By Marc C. Shaffer
If covering the cost of a college education for a child or loved one is a priority for you, there are ways you can do it that are tax advantaged and that allow you to save over time to meet the goal rather than trying to come up with money when the recipient is 18 and going to college. A 529 Plan could be a solution that fits your needs. Not only does a 529 Plan account grow tax free, but as a Kansas or Missouri resident, you get a state income tax deduction to save you money today.
Other state’s rules may differ: https://www.savingforcollege.com/article/how-much-is-your-state-s-529-plan-tax-deduction-really-worth
If you have already saved in a 529 Plan and are ready to use those funds, you may be wondering what is and what is not considered a qualified expense. For a quick reference, here are some of the distinctions:
What is considered a qualified expense?
- Tuition – The easiest way to make this payment is directly from the 529 Plan to the institution. If we manage a 529 Plan Account for you, please feel free to forward us a copy of your child’s tuition invoice and we can work with the 529 Plan provider to have a check sent directly to the educational institution referencing the Student ID Number.
- Room and Board – If your child lives off-campus , the approved R&B limit as a qualified expense is set by the college and anything above the level they set is a nonqualified expense and may be subject to potential taxes and a 10% penalty.
- Technology Items – Examples include computers, printers, laptops and internet service.
- Books and Supplies – The budget is set by the school and only required items are covered.
- Student Loan Repayment – Official rules may vary by state.
What isn’t considered a qualified expense?
- Transportation and Travel – Although these expenses are common, especially for an out-of-state student, they are not covered.
- Sport and Fitness Club Memberships – Even on-campus memberships are not covered.
- Insurance/Health Insurance – Even if you are on a school plan that is billed by the school, it is not covered.
- General Electronics and Cell Phone Plans – Though these items are used often in life and schoolwork, they are considered everyday items and are not covered by the 529 Plan.
- On and Off Campus Parking
Wondering if the distribution from your 529 Plan is taxable? This flowchart will help guide you through different scenarios.