Selective colleges charge college admission application fees of $40 to $90 each. With the addition of admissions testing fees, the total can be as much as $107 per college. That can easily add up to thousands of dollars if the student applies to an excessive number of colleges. So, it is not surprising that parents might want to use 529 plan funds to pay for college application fees and admissions testing fees.
Unfortunately, college application fees and admissions testing fees are not qualified expenses for 529 college savings plans. If 529 plan funds are used to pay for these fees, it will be considered a non-qualified distribution, subject to ordinary income taxes and a 10% tax penalty on the earnings portion of the distribution.
The statutory language at 26 USC 529(e)(3) states that “The term ‘qualified higher education expenses’ means tuition, fees, books, supplies and equipment required for the enrollment or attendance of a designated beneficiary at an eligible educational institution.”
College application fees and admissions testing fees are paid prior to a student’s acceptance for admission at an eligible educational institution. They may be required for admission, but they are not required for enrollment or attendance.
Even if one argues that college application fees are necessary for admission to a college and that enrollment or attendance at a college entails admission to the college, so college application fees are necessary for enrollment or attendance at a college, that does not mean that college application fees are sufficient for enrollment or attendance at a college. An applicant to a college will not necessarily be admitted to the college.
Moreover, students usually apply to multiple colleges, but attend only one college. College application fees paid to other colleges could not have been required for the enrollment or attendance of the beneficiary at the college chosen by the beneficiary.
Thus, college application fees and admissions testing fees do not satisfy the requirements to be considered a qualified higher education expense.
College application fees and admissions testing fees also do not satisfy the requirements to be considered an eligible K-12 expense, since the Tax Cuts and Jobs Act of 2017 limited qualified K-12 school expenses to “tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school.”