One question I can almost always predict when a parent has a child with a 529 plan is, “Can I use the funds for this?” The “this” varies—from rent and groceries to laptops and gap year programs—but the underlying concern is the same: avoiding taxes and penalties while making the most of the account. The good news is that 529 plans have become significantly more flexible over the years. The challenge is understanding the rules.
The Penalty for Getting it Wrong
The confusion is understandable. Congress has expanded the flexibility of 529 plans several times over the past decade, and the list of qualified expenses looks very different today than it did when many parents and grandparents first opened accounts. It’s also understandable that parents want to get it right, given that if you withdraw from a 529 plan for an ineligible expense, you will be subject to a penalty of 10% plus ordinary income taxes on the earnings portion of the withdrawal. (Contributions are always made with after-tax money so the principal portion is never subject to taxes or penalties.) Adding to the potential sting, some states also tack on an additional penalty or require you to pay back prior state tax deductions or credits if you make a withdrawal that is not permitted.
There are some exceptions to this. The 10% penalty is waived if the student receives a tax-free scholarship (withdrawals up to the amount of the scholarship), attends a U.S. military academy, passes away, or becomes disabled. However, income tax on earnings still applies in most cases.
One of the most overlooked aspects of using a 529 plan is that it’s not enough for an expense to be qualified; it must also be properly timed and documented. In general, qualified expenses should be incurred in the same tax year as the corresponding 529 withdrawal. Maintaining records such as tuition statements, receipts, lease agreements, and account statements can be invaluable if questions arise later. In addition, be sure to avoid “double-dipping.” Expenses used to justify tax-free 529 withdrawals generally cannot also be used to claim education-related tax credits such as the American Opportunity Tax Credit.
Which Expenses ALWAYS Qualify for Tax- (and Penalty-) Free 529 Payment?
When it comes to traditional, community and technical colleges, the guidelines around qualified 529 expenses are reasonably simple. As long as a student is enrolled at an eligible postsecondary school, the following expenses can be paid for, tax-free, with 529 funds:
- Tuition and mandatory school fees
- Room and board, up to the school’s cost of attendance for room and board (as long as the student is attending at least half-time)
- Course textbooks, supplies and other materials required for coursework
- Computers, software, and internet access necessary for classes
- Adaptive equipment for students with special needs
While flexibility has expanded significantly, qualified expenses remain narrowly defined. Although the expenses listed above generally qualify for tax- and penalty-free treatment, tax laws and interpretations evolve over time. When in doubt, it is worth confirming eligibility before taking a distribution. The IRS publishes guidance on qualified education expenses, which can be a helpful resource for those researching a specific expense.
Which Expenses SOMETIMES Qualify for Tax- (and Penalty-) Free 529 Payment?
Some expenses fall into a gray area, where qualification depends on the specific circumstances or the type of educational program involved.
K–12 Expenses: Beginning in 2026, families can use up to $20,000 per beneficiary, per year, for K–12 tuition and certain qualified educational expenses, including books, online materials, and standardized testing fees. Homeschooling expenses generally do not qualify.
Apprenticeship Program Expenses: As long as the program is registered and certified with the Department of Labor, any fees, books, supplies and equipment required for participation can be paid for with 529 funds. You can determine whether a program qualifies on the U.S. Department of Labor’s website.
Postsecondary Credentialing Programs: Examples include occupational licensures like nursing licenses and technical education certificates like personal fitness training certifications. In many cases, advanced professional credentials may also qualify. This includes tuition, books, supplies and more, along with the licensing exam itself. If you’re wondering whether a specific certificate falls under the government’s definition for postsecondary credentialing programs, check out the Department of Labor’s credential resources.
Gap Year Programs: Students taking time off in between graduating from high school and starting college may enroll in a gap year program—a structured educational opportunity to gain life experience and career skills. In order to use money from your 529 plan to fund a gap year program, you need to ensure that the program offers college credits from an eligible institution, which you can typically determine by whether they are on the U.S. Department of Education’s Database of Accredited Postsecondary Institutions and Programs.
Study Abroad Programs: Study abroad expenses can qualify for tax-free 529 withdrawals if the program is offered through, sponsored by, or approved for credit by an eligible educational institution. Most colleges and universities participating in federal student aid programs meet this definition. Qualified expenses may include tuition, fees, room and board (subject to the same rules that apply on campus in the U.S.), books, supplies, and required equipment. However, travel expenses—including airfare, transportation, and most sightseeing or personal travel costs—are generally not considered qualified expenses and cannot be paid tax-free from a 529 plan. As with any 529 withdrawal, families should retain documentation showing the school’s sponsorship or approval of the program, along with receipts for the qualified expenses being reimbursed.
Off-Campus and Summer Break Housing: If a student lives in off-campus housing, they can typically use 529 account funds to pay rent—but only up to the amount the school lists as the official cost of attendance (COA) for housing. For example, if the school’s COA for housing is $15,000 per academic year and the student’s apartment rent totals $17,000, only $15,000 can be paid with 529 funds.
If the student chooses to remain living in their on- or off-campus housing during summer break and is still enrolled at least half-time, the expense will still qualify under these guidelines.
To find the school’s cost of attendance allowance, check the school’s website or contact the financial aid office. Be sure to retain documentation supporting the expense, including lease agreements, rent invoices, and records showing the school’s housing allowance. Good recordkeeping is especially important when using 529 funds for expenses that are not billed directly through the school.
Groceries: Food and other groceries purchased outside of the university could qualify as an eligible expense if the following requirements are met:
- The student is living in off-campus housing in accordance with the above requirements.
- The amount used remains within the budget for room and board as outlined by the university as part of their official cost of attendance.
- While it may be cumbersome to track, a student choosing to use 529 funds on food while staying off-campus (and not using a meal plan) should be sure to maintain receipts.
Student Loans: For students who get through college but still have loans to pay off, 529 funds can be used federal tax-free to pay down both federal and private student loan debt, with a lifetime limit of $10,000. And if the beneficiary of the 529 account has siblings, each one can also use up to $10,000 from the account towards their student loan debt—without having to change the beneficiary.
While this provision can provide valuable flexibility, families should carefully evaluate whether using 529 assets for loan repayment is the best long-term use of those funds.
Which Expenses Are NEVER Eligible for Tax-Free 529 Payment?
While 529 plans are more flexible than they once were, many common student expenses still do not qualify for tax-free treatment.
These expenses include (but are not limited to):
- Furniture and accessories for the student’s living space, such as a mini-fridge or television
- Extracurricular fees, such as intramural activities or fraternity and sorority dues
- College application fees
- Parking, transportation and travel fees
- Health insurance
- Software unrelated to a course of study, such as computer games
Final Thoughts
Identifying qualified expenses is only part of the equation. Even well-intentioned families can trigger taxes or penalties by overlooking a few common administrative mistakes. Some of the most frequent issues we see include:
- taking a withdrawal in a different tax year than the expense was incurred;
- failing to retain receipts and supporting documentation;
- exceeding the school’s published room and board allowance;
- or assuming that all technology purchases qualify as educational expenses.
It’s also important to remember that state-specific rules may differ from federal law, potentially affecting the tax treatment of a withdrawal.
529 plans remain one of the most valuable education planning tools available, but maximizing their benefits requires more than simply saving for college. As Congress continues to expand the flexibility of these accounts, understanding the rules around qualified expenses, timing, and documentation becomes increasingly important. A little planning up front can help ensure that your withdrawals remain tax-free and penalty-free. If you have questions about eligible expenses, timing of withdrawals, or how to use excess 529 funds, we encourage you to reach out to your Bragg Financial team.
Related Articles
Additional Resources
This information is believed to be accurate at the time of publication but should not be used as specific investment or tax advice as opinions and legislation are subject to change. You should always consult your tax professional or other advisors before acting on the ideas presented here.
Mag 7 – When Too Much Success Becomes a Risk
May 3, 2026Community Spotlight: Ella Foard Foundation
June 1, 2026One question I can almost always predict when a parent has a child with a 529 plan is, “Can I use the funds for this?” The “this” varies—from rent and groceries to laptops and gap year programs—but the underlying concern is the same: avoiding taxes and penalties while making the most of the account. The good news is that 529 plans have become significantly more flexible over the years. The challenge is understanding the rules.
The Penalty for Getting it Wrong
The confusion is understandable. Congress has expanded the flexibility of 529 plans several times over the past decade, and the list of qualified expenses looks very different today than it did when many parents and grandparents first opened accounts. It’s also understandable that parents want to get it right, given that if you withdraw from a 529 plan for an ineligible expense, you will be subject to a penalty of 10% plus ordinary income taxes on the earnings portion of the withdrawal. (Contributions are always made with after-tax money so the principal portion is never subject to taxes or penalties.) Adding to the potential sting, some states also tack on an additional penalty or require you to pay back prior state tax deductions or credits if you make a withdrawal that is not permitted.
There are some exceptions to this. The 10% penalty is waived if the student receives a tax-free scholarship (withdrawals up to the amount of the scholarship), attends a U.S. military academy, passes away, or becomes disabled. However, income tax on earnings still applies in most cases.
One of the most overlooked aspects of using a 529 plan is that it’s not enough for an expense to be qualified; it must also be properly timed and documented. In general, qualified expenses should be incurred in the same tax year as the corresponding 529 withdrawal. Maintaining records such as tuition statements, receipts, lease agreements, and account statements can be invaluable if questions arise later. In addition, be sure to avoid “double-dipping.” Expenses used to justify tax-free 529 withdrawals generally cannot also be used to claim education-related tax credits such as the American Opportunity Tax Credit.
Which Expenses ALWAYS Qualify for Tax- (and Penalty-) Free 529 Payment?
When it comes to traditional, community and technical colleges, the guidelines around qualified 529 expenses are reasonably simple. As long as a student is enrolled at an eligible postsecondary school, the following expenses can be paid for, tax-free, with 529 funds:
While flexibility has expanded significantly, qualified expenses remain narrowly defined. Although the expenses listed above generally qualify for tax- and penalty-free treatment, tax laws and interpretations evolve over time. When in doubt, it is worth confirming eligibility before taking a distribution. The IRS publishes guidance on qualified education expenses, which can be a helpful resource for those researching a specific expense.
Which Expenses SOMETIMES Qualify for Tax- (and Penalty-) Free 529 Payment?
Some expenses fall into a gray area, where qualification depends on the specific circumstances or the type of educational program involved.
K–12 Expenses: Beginning in 2026, families can use up to $20,000 per beneficiary, per year, for K–12 tuition and certain qualified educational expenses, including books, online materials, and standardized testing fees. Homeschooling expenses generally do not qualify.
Apprenticeship Program Expenses: As long as the program is registered and certified with the Department of Labor, any fees, books, supplies and equipment required for participation can be paid for with 529 funds. You can determine whether a program qualifies on the U.S. Department of Labor’s website.
Postsecondary Credentialing Programs: Examples include occupational licensures like nursing licenses and technical education certificates like personal fitness training certifications. In many cases, advanced professional credentials may also qualify. This includes tuition, books, supplies and more, along with the licensing exam itself. If you’re wondering whether a specific certificate falls under the government’s definition for postsecondary credentialing programs, check out the Department of Labor’s credential resources.
Gap Year Programs: Students taking time off in between graduating from high school and starting college may enroll in a gap year program—a structured educational opportunity to gain life experience and career skills. In order to use money from your 529 plan to fund a gap year program, you need to ensure that the program offers college credits from an eligible institution, which you can typically determine by whether they are on the U.S. Department of Education’s Database of Accredited Postsecondary Institutions and Programs.
Study Abroad Programs: Study abroad expenses can qualify for tax-free 529 withdrawals if the program is offered through, sponsored by, or approved for credit by an eligible educational institution. Most colleges and universities participating in federal student aid programs meet this definition. Qualified expenses may include tuition, fees, room and board (subject to the same rules that apply on campus in the U.S.), books, supplies, and required equipment. However, travel expenses—including airfare, transportation, and most sightseeing or personal travel costs—are generally not considered qualified expenses and cannot be paid tax-free from a 529 plan. As with any 529 withdrawal, families should retain documentation showing the school’s sponsorship or approval of the program, along with receipts for the qualified expenses being reimbursed.
Off-Campus and Summer Break Housing: If a student lives in off-campus housing, they can typically use 529 account funds to pay rent—but only up to the amount the school lists as the official cost of attendance (COA) for housing. For example, if the school’s COA for housing is $15,000 per academic year and the student’s apartment rent totals $17,000, only $15,000 can be paid with 529 funds.
If the student chooses to remain living in their on- or off-campus housing during summer break and is still enrolled at least half-time, the expense will still qualify under these guidelines.
To find the school’s cost of attendance allowance, check the school’s website or contact the financial aid office. Be sure to retain documentation supporting the expense, including lease agreements, rent invoices, and records showing the school’s housing allowance. Good recordkeeping is especially important when using 529 funds for expenses that are not billed directly through the school.
Groceries: Food and other groceries purchased outside of the university could qualify as an eligible expense if the following requirements are met:
Student Loans: For students who get through college but still have loans to pay off, 529 funds can be used federal tax-free to pay down both federal and private student loan debt, with a lifetime limit of $10,000. And if the beneficiary of the 529 account has siblings, each one can also use up to $10,000 from the account towards their student loan debt—without having to change the beneficiary.
While this provision can provide valuable flexibility, families should carefully evaluate whether using 529 assets for loan repayment is the best long-term use of those funds.
Which Expenses Are NEVER Eligible for Tax-Free 529 Payment?
While 529 plans are more flexible than they once were, many common student expenses still do not qualify for tax-free treatment.
These expenses include (but are not limited to):
Final Thoughts
Identifying qualified expenses is only part of the equation. Even well-intentioned families can trigger taxes or penalties by overlooking a few common administrative mistakes. Some of the most frequent issues we see include:
It’s also important to remember that state-specific rules may differ from federal law, potentially affecting the tax treatment of a withdrawal.
529 plans remain one of the most valuable education planning tools available, but maximizing their benefits requires more than simply saving for college. As Congress continues to expand the flexibility of these accounts, understanding the rules around qualified expenses, timing, and documentation becomes increasingly important. A little planning up front can help ensure that your withdrawals remain tax-free and penalty-free. If you have questions about eligible expenses, timing of withdrawals, or how to use excess 529 funds, we encourage you to reach out to your Bragg Financial team.
Related Articles
Additional Resources
This information is believed to be accurate at the time of publication but should not be used as specific investment or tax advice as opinions and legislation are subject to change. You should always consult your tax professional or other advisors before acting on the ideas presented here.
More About...
Trump Accounts: A New Vehicle for Long-Term Savings
Read more
Directed Trustees: Flexibility, Accountability, and Teamwork
Read more
2026 Tax Rates & Inflation Adjustments
Read more
Psychology & Money: When Two Worlds Collide
Read more
The House Always Wins—Unless You’re Investing
Read more
The Tax Valley: A Hidden Opportunity for Retirees
Read more
Bridge Loan Bootcamp
Read more
Understanding the One Big Beautiful Bill and Its Tax Changes
Read more