What you can't pay for with a 529 plan

Kathryn FlynnBy:  Kathryn FlynnBy: Savingforcollege.com

529 plans are tax-advantaged accounts designed to save for college, but the tax benefits are only available when the funds are used to pay for qualified expenses. Distributions used to pay for some college expenses are considered non-qualified and may be subject to income tax and a 10 percent penalty on the earnings portion of the withdrawal. Non-qualified 529 distributions may also be subject to recapture if a state tax deduction was claimed.

Qualified 529 plan expenses include costs required for the enrollment or attendance at an eligible college or university. This includes tuition, fees, books, supplies equipment, and, in some cases, room and board. (Up to $10,000 per year can also be withdrawn tax-free to pay for K-12 tuition.)

However, there are some expenses a college student or prospective student may incur that are not considered qualified. These additional costs can be significant, so families may want to consider opening an additional savings account to complement their 529 plan.

Here are some common expenses that are not considered qualified for 529 plan purposes:

College Application and Testing Fees

Qualified expenses include those required for the 529 plan beneficiary’s enrollment or attendance at an eligible institution. This does not include application and testing fees, which could end up costing thousands of dollars depending on how many colleges the student applies to.

  • College-Level Examination Program (CLEP) exams: $85 per exam
  • College test prep: Varies, but popular programs range from $599 - $699
  • ACT/ SAT: $47.50 - $67.00 per registration, additional costs for international students and late registration
  • College admission application fees: $40 - $90 per application


Transportation costs are not a qualified 529 plan expense. According to the College Board’s Trends in College Pricing 2017 report, financial aid offices budgeted the following amounts for transportation costs for the 2017-18 school year cost of attendance:

  • Public 4-year college (in-state, living on campus): $1,170
  • Public 4-year college (out-of-state, living on campus): $1,170
  • Private 4-year college (living on campus): $1,030

These costs include average transportation expenses a student may incur while living on campus including gas, maintenance, bus fare and costs of traveling home for vacations and holidays.

Health insurance

If your child is not covered by your family health insurance policy, you may be required to purchase health insurance through the college. The type of coverage available and price of the policy will vary depending on the college, but the average plan typically costs around $1,500- $2,500 per year. Medical bills are also considered a non-qualified expense.

Extracurricular activities and other miscellaneous expenses

Joining a sport, club fraternity or sorority also comes with additional costs that are not covered by your child’s 529 plan. Clubs sports programs, such as rowing and field hockey, are usually the most expensive, with dues as high as $2,500 per year. You may be able to use your child’s 529 plan savings to pay for fraternity or sorority housing costs (up to the college’s room and board allowance amount), but semester dues (sometimes more than $1,000) are considered a non-qualified expense. Other non-qualified personal expenses include gym memberships, entertainment, dates and childcare.

Some room and board costs

Students can use a 529 plan to pay for room and board expenses, but only if they are enrolled in an eligible college on at least a half-time basis. If the student lives off-campus, qualified room and board costs are limited to what is included in the college’s cost of attendance (COA) allowance for room and board for the period. Qualified expenses must have incurred during an academic period when the student was enrolled in or accepted for enrollment in a program leading to a recognized academic credential.

Student loans

At the time of this publication, families cannot take a tax-free 529 plan distribution to pay back student loans. However, there are legislative proposals in place to treat student loan payments as a qualified higher education expense for 529 plans. If the legislation passes, any loan interest payments made with 529 plan funds will not be eligible for the student loan interest deduction.

Find your 529 plan - Select your state below

Did you know that residents are not limited to investing in their own state's plan? Another state may offer a plan that performs better and has lower fees. Select your state below to see your state's plan and other options.

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Find a 529 Plan. Select your state below.

Did you know that residents are not limited to investing in their own state’s plan? Another state may offer a plan that performs better and has lower fees. Select your state below to see your state’s plan and other options.


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