529 Plan Qualified & Nonqualified Expenses

529 Plan Qualified & Nonqualified Expenses

Presented by Gerard Longo, AIFA®, CPFA®:

September is College Savings Awareness month so paying attention to qualified and nonqualified expenses for 529 Plans can help you avoid needlessly paying a penalty.

What are the qualified and nonqualified expenses

You’ve put in the hard work of saving for college, and now it’s time to start using those 529 plan assets to help with a family member’s education-related costs. But before you begin withdrawing those funds, it’s important to understand the difference between qualified and nonqualified expenses.

The charts below provide an overview of some of the most common qualified and nonqualified expenses. 

Qualified Expenses

529 Plans: Qualified and Nonqualified Expenses Figure 1

Nonqualified Expenses

529 Plans: Qualified and Nonqualified Expenses Figure 2

Please note: Just because an expense is nonqualified, it doesn’t mean the 529 plan funds cannot be considered a source of payment. The main consequence of paying nonqualified expenses from the 529 plan is that the gains portion of that distribution will be taxed, and it could be assessed a 10 percent penalty.

For more information on 529 plans (referred to as “Qualified Tuition Programs”), and for examples of tax and coordination calculations, see the Qualified Tuition Programs section of IRS Publication 970. 

This material  on qualified and nonqualified expenses has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

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Gerard Longo is a financial advisor located at Global Wealth Advisors 2400 Ansys Drive, Suite 102, Canonsburg, PA 15317. He offers advisory services through Commonwealth Financial Network®, Member FINRA  / SIPC, a Registered Investment Adviser. Financial planning services offered through Global Wealth Advisors, LLC are separate and unrelated to Commonwealth. Gerard can be reached at (412) 914-8292 or at info@gwadvisors.net.

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