Thinking of going back to school? Whether you’re upskilling for a new job or pursuing a long-held passion, tax-advantaged 529 plans might be the perfect tool to make continuing education more affordable.
Not Limited to Degree and Certificate Programs
You can use 529 plan funds for most tuition and other expenses related to continuing education, including coding boot camps and professional certifications, provided they meet Title IV eligibility. The 529 plan beneficiary does not have to be enrolled in a degree or certificate program to be considered qualified.
Eligible expenses in continuing education include fees, required books, supplies, and equipment. However, room and board are exceptions. Room and board costs are considered qualified expenses only if the beneficiary is enrolled at least half-time and is pursuing a degree or certificate. Room and board costs qualify only for half-time students pursuing a degree or certificate up to the college’s budget allowance.
Other requirements for 529 qualification
As mentioned above, classes must be provided by eligible educational institutions for Title IV federal student aid to count as qualifying education expenses. This includes community college courses and undergraduate and graduate degree programs.
Prospective students can use the Federal School Code Lookup tool to determine if a particular college is recognized as an eligible institution. Study abroad is an option. However, travel costs are not considered to be qualified expenses.
529 plans for adults
Regardless of age, the 529 plan account owner can usually name any U.S. citizen or resident alien with a Social Security number or taxpayer identification number as the beneficiary. The 529 plan account owner and the beneficiary can be the same person.
If a child has leftover funds in their 529 plan account after finishing college or decides not to go to college, their parent can use them to continue their education. Parents can change the beneficiary to themselves by completing a form on the plan’s website and then taking qualified distributions once they complete the process. However, the beneficiary cannot be changed to a parent if the 529 plan is a custodial 529 plan.
Adults returning to college can also set up their own 529 plan account, as one would set up a 529 plan for a child, except they would name themselves as the beneficiary.
No double-dipping with the Lifetime Learning Tax Credit
Through the Lifetime Learning Tax Credit, adults continuing their education may qualify for a maximum $2,000 federal income tax credit.
In 2024, taxpayers with a modified adjusted gross income (MAGI) of $90,000 or less ($180,000 if married and filing jointly) may claim a 20% tax credit on up to $10,000 combined tuition and mandatory fees for themselves, their spouse, and their dependent children. The tax credit is reduced for taxpayers with MAGIs between $80,000 and $90,000 ($160,000 and $180,000 for joint filers).
Unlike the American Opportunity Tax Credit, the Lifetime Learning Tax Credit does not require the student to be enrolled in a degree program at least half-time, and there is no limit on the number of years you may claim the credit.
However, the IRS does not allow double-dipping regarding federal tax benefits. Any expenses you use to generate the Lifetime Learning Tax Credit cannot be included in qualified expenses to justify a tax-free 529 plan withdrawal. For example, students who receive the full $2,000 tax credit must subtract $10,000 from their total 529 plan qualified expenses.
