Section 529 of the Internal Revenue Code defines “qualified higher education expenses” as tuition, fees, books, supplies, and equipment required for a beneficiary’s enrollment or attendance at an eligible educational institution. The term includes computers and peripherals, software (except for non-educational sports, games, or hobby software), and internet service, provided they are used primarily by the beneficiary while enrolled at an eligible educational institution. Expenses for special needs services incurred in connection with enrollment or attendance at an eligible educational institution are also included in the definition.
For beneficiaries who are enrolled at least half-time at an eligible educational institution, qualified higher education expenses include reasonable room and board. The amount of room and board cannot exceed the greater of: (1) the allowance included in the “cost of attendance,” as defined under federal law, as determined by the eligible educational institution for the period; or (2) the actual invoice amount charged to the beneficiary for room and board, if the beneficiary resides in housing owned or operated by the eligible educational institution.
The following expenses are also treated as qualified higher education expenses under Code §529:
- Up to $10,000 per year of your beneficiary’s K-12 tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school;
- Fees, books, supplies, and equipment necessary to participate in a registered apprenticeship program; and
- Up to $10,000 in amounts paid as principal or interest on any qualified education loan (as defined in Code §221(d)) of the beneficiary or a sibling of the beneficiary (“qualified student loan repayments”). Note that the state tax consequences of using 529 plans for K-12 tuition will vary by state and may involve taxes, penalties, and the recapture of tax deductions.
Tax consequences of using 529 plans for elementary or secondary education tuition expenses will vary depending on state law and may include recapture of tax deductions received from the original state as well as penalties. You should consider consulting with a tax or legal advisor to determine any such consequences.