Selective colleges charge admission application fees of $50 to $100 each, while SAT fees are over $60. If the student applies to many colleges, fees can quickly add up to thousands of dollars.
So, it is unsurprising that parents might want to use tax-free withdrawals from 529 plan funds to pay for college application and admissions testing fees.
Unfortunately, college application fees are not qualified expenses for 529 college savings plans. If you use 529 plan funds to pay for these fees, the IRS will consider this a non-qualified withdrawal, subject to ordinary income taxes and a 10% tax penalty on the earnings portion of the distribution.
However, beginning with distributions made after July 4, 2025, fees for admissions testing arenow considered qualified education expenses. That means that you can make federal tax-free withdrawals from a 529 plan to pay for expenses associated with exams such as the SAT and ACT, as well as AP exam fees.
This is a result of a change to the definition of qualified higher education expenses in the One Big Beautiful Bill Act. Specifically, the legislation states that “the term ‘qualified higher education expense’ shall include a reference to the following expenses in connection with enrollment or attendance at, or for students enrolled at or attending, and elementary or secondary public, private, or religious school”:
“Fees for a nationally standardized norm-referenced achievement test, an advanced placement examination, or any examinations related to college or university admission”
While the legislation does not add application fees to the list, the change provides some relief for parents saving with a 529 plan. Note that you are limited to a total 529 withdrawal of $10,000 per student for K-12 expenses in 2025 (this increases to $20,000 in 2026). If you are using your 529 plan to pay for tuition or other K-12 expenses, you’ll want ensure your withdrawals stay within the limit to avoid taxes and penalties.
Mark Kantrowitz is a nationally-recognized expert on student financial aid, scholarships and student loans. His mission is to deliver practical information, advice and tools to students and their families so they can make informed decisions about planning and paying for college.
Mark writes extensively about student financial aid policy. He has testified before Congress and federal/state agencies about student aid on several occasions.
Mark has been quoted in more than 10,000 newspaper and magazine articles. He has written for the New York Times, Wall Street Journal, Washington Post, Reuters, Huffington Post, U.S. News & World Report, Money Magazine, Bottom Line/Personal, Forbes, Newsweek and Time Magazine. He was named a Money Hero by Money Magazine. He is the author of five bestselling books about scholarships and financial aid, including How to Appeal for More College Financial Aid, Twisdoms about Paying for College, Filing the FAFSA and Secrets to Winning a Scholarship.
Mark serves on the editorial board of the Journal of Student Financial Aid and the editorial advisory board of Bottom Line/Personal (a Boardroom, Inc. publication). He is also a member of the board of trustees of the Center for Excellence in Education. Mark previously served as a member of the board of directors of the National Scholarship Providers Association.
Mark is currently Publisher of PrivateStudentLoans.guru, a web site that provides students with smart borrowing tips about private student loans. Mark has served previously as publisher of the Cappex.com, Edvisors, Fastweb and FinAid web sites. He has previously been employed at Just Research, the MIT Artificial Intelligence Laboratory, Bitstream Inc. and the Planning Research Corporation.
Mark is President of Cerebly, Inc. (formerly MK Consulting, Inc.), a consulting firm focused on computer science, artificial intelligence, and statistical and policy analysis.
Mark is ABD on a PhD in computer science from Carnegie Mellon University (CMU). He has Bachelor of Science degrees in mathematics and philosophy from MIT and a Master of Science degree in computer science from CMU. He is also an alumnus of the Research Science Institute program established by Admiral H. G. Rickover.
The latest articles and tips to help parents stay on track with saving and paying for college, delivered to your inbox every week.
Thank you! You have been successfully subscribed to our email list.
Frequently featured in:
Saving For College is an unbiased, independent resource for parents and financial professionals, providing them with information and tools to understand the benefits of 529 college savings plans and how to meet the challenge of increasing college costs.
