What if your child doesn’t want to go to college? It’s a question more families are asking as career paths diversify. With nearly a quarter-million people entering apprenticeship programs annually, traditional four-year colleges aren’t the only option for a bright future.
The good news? A 529 plan isn’t limited to just college tuition. These versatile savings accounts can also be used to cover apprenticeship-related costs.
In this post, we’ll explore how you can make the most of your 529 for alternative educational paths.
Overview of Apprenticeships
An apprenticeship is an official training program. There are two basic types of apprenticeship programs: registered and unregistered. The former must be registered with the state, which is called a registered apprenticeship. Registration is a non-negotiable requirement for expenses to qualify as a 529-eligible withdrawal.
The country has about 27,000 apprenticeship programs, with thousands added each year. As of 2020, there were roughly 500,000 apprentices in the country.
Apprenticeship programs are paid opportunities, similar to internships for white-collar students. So, if they’re paid, why would a 529 be helpful? Some costs, like buying your own tools and equipment, may still be associated with the apprenticeship. You may still have to pay the required fees, supplies, textbooks, etc.
In the same way that the federal government designates which colleges are eligible for federal funding, registered apprenticeships are carefully screened and vetted to ensure that students receive quality education and training.
Students can find apprenticeships for the following types of careers:
- Advanced manufacturing
- Agriculture
- Construction
- Education
- Energy
- Financial services
- Healthcare
- Hospitality
- Technology
- Telecom
- Transportation
Most people think apprenticeship programs are only for people who want to work in traditional trades. However, there are white-collar options in apprenticeship programs.
The most popular types of apprenticeships are:
- Electricians
- Computer operators
- Carpenters
- Plumber
- Construction craft laborer
- Pipe fitter
- Sheet metal worker
You can think of an apprenticeship as a hybrid between an internship and a college degree. You’ll get hands-on training with experienced teachers who can guide you through your career. The best part? You’ll earn money during your apprenticeship.
The benefit of an apprenticeship, especially a registered apprenticeship, is that you’ll get real, tangible skills while still being compensated for your time. Plus, completing one can make it easier to get a full-time job.
Using 529 Plans for Apprenticeships
Since the SECURE Act passed in 2019, students have been able to use 529 funds to pay for apprenticeship-related expenses. If you have a 529 and aren’t attending a traditional college, an apprenticeship is the perfect opportunity to use those funds.
To find an eligible apprenticeship, go here and click on the “Apprenticeship Programs” tab, not the “Apprenticeship Jobs” tab. You can search by occupation, location, company name, or keyword. You can also create an account and save programs.
Even with an eligible apprenticeship program, you can only pay for qualified expenses with a 529. These expenses include:
- Tools and Equipment, such as:
- Welding equipment
- Construction tools (e.g., hammers, drills, saws)
- Electrician’s toolkit
- Healthcare instruments (e.g., stethoscopes, blood pressure monitors)
- Safety gear (e.g., gloves, goggles, helmets)
- Required Materials and Supplies, such as:
- Computer software or hardware for technology apprenticeships (if explicitly required)
- Uniforms specific to the apprenticeship (e.g., scrubs, steel-toe boots)
- Textbooks and Study Guides, such as:
- Training manuals for electricians or plumbers
- Certification prep books (e.g., for IT certifications or licensing exams)
- Industry-specific reference books
- Fees and Tuition, such as:
- Registration or enrollment fees for the apprenticeship program
- Exam or certification fees required to complete the program
- Membership fees for industry organizations (if required for the program)
- Specialized Training Courses, such as:
- Supplemental courses required by the apprenticeship (e.g., safety training, first aid certification)
- Supplies for Training Projects, such as:
- Raw materials for assignments (e.g., wood for carpentry, fabric for tailoring apprenticeships)
- Digital Tools, such as:
- Subscriptions to industry-specific software or learning platforms (if required by the program)
- Online training modules or e-learning subscriptions
Note that eligibility for using 529 funds to cover apprenticeship expenses is subject to specific rules set by the U.S. government and individual state guidelines. To ensure your apprenticeship program and expenses qualify, verify details through official resources such as the U.S. Department of Labor or Apprenticeship.gov. For tailored advice, consider consulting a financial advisor or tax professional.
A critical note on an expense that isn’t allowed: Unlike college students, you cannot use a 529 to pay for living expenses without incurring a fee. You must rely on other funding sources if your apprenticeship doesn’t pay enough to cover living expenses.
Financial Advantages of Using 529 Plans for Apprenticeships
Anyone can open a 529 plan—even students themselves—and benefit from its primary advantage: tax-free growth. Unlike taxable accounts, where earnings are subject to taxes, a 529 plan allows your savings to grow tax-free, provided the funds are used for qualified expenses.
If you already have a funded 529, you have two convenient options for covering apprenticeship expenses: you can withdraw funds to your personal bank account or pay expenses directly from the 529 account.
Another benefit is that over 30 states provide a tax break for 529 contributions in the form of either a tax deduction or tax credit. To qualify for a tax credit or tax deduction, you may be required to use your state’s official 529 account. If you use an account in another state, then you may not be eligible for the tax break. However, nine tax parity states offer a state income tax benefit for contributions to any 529 plan, not only in-state plans.
Steps to Use 529 Plan Funds for an Apprenticeship
1. Confirm Eligibility of the Apprenticeship Program
Not every apprenticeship program is eligible for qualified withdrawals from 529s. First, the program must be registered with the U.S. Labor Department. This information can be found here.
Don’t take the apprenticeship’s word for it – they may list themselves as registered, but you need to verify that through your state or the Department of Labor.
2. Calculate Eligible Expenses
When you pay for a qualified expense, you can either pay for it directly through your 529 or you can request a distribution from your 529 to your bank account.
However, make sure to track everything, ideally digitally or in the cloud. If you buy something from a physical store, scan the receipt and rename it so it’s easy to find later on. Part of the challenge of using a 529 for reimbursements is keeping everything organized.
Iaccountse ever audited or asked to show proof of you. Otherwise, it could be a huge hassle trying to find the appropriate documentation.
Potential Challenges and Considerations
If you want to use a 529 to pay for an apprenticeship, you’ll have to go through several steps first.
Open the Right 529
If you’re using a 529 to qualify for a tax break, make sure you open a must9. Each state has its rules regarding which 529 account you must qualify.
Track Your Distributions
If you’re reimbursing yourself from your 529 account for expenses paid by a credit card or bank account, make sure to carefully document everything. It might help to use a special label in your email inbox or start a spreadsheet with a list of your apprenticeship expenses.
If you use your 529 funds for an unauthorized expense (like rent), you must declare it as income on your taxes. This can come as a surprise for many students.
Attend a Registered Apprenticeship
A third important factor is to make sure your apprenticeship is registered. You won’t be able to use 529 funds if it isn’t. Plus, registered apprenticeships are more legitimate and are likely to give you a better overall learning experience and open up more job opportunities.
The Bottom Line
Using a 529 for your apprenticeship program can be a savvy way to save money on taxes. But a 529 isn’t like a regular savings account – there are several important rules and requirements that you must satisfy. Make sure to choose a registered apprenticeship program, pick the right 529, and document everything.
