College Planning

Understanding 529 Plan Rules

529 Plans enable people to save money to pay for college. It is commonly wondered if that money can be used for other expenses. It's important to know how you can utilize 529s and avoid penalties.

529 Plan Rules: Must I Use All The Money For Educational Expenses?

Higher Educational Expenses Only

With the average price of a private four-year college in the United States (including tuition, fees, and room and board) rising to nearly $40,900 a year,1 many people are concerned about how to fund their child’s education. Fortunately, 529 plans can be a way to save for college.

Named after the IRS code section that created it, a 529 plan is a tax-advantaged investment plan that’s designed to encourage saving for future higher education expenses of your beneficiary (typically a child or grandchild). Plans are administered by state agencies and organizations as a way for people to save for qualified educational expenses such as tuition, room and board, and textbooks. But do you have to use 100 percent of the money in your 529 plan for college related expenses? Simply put, yes.

According to the U.S. Securities and Exchange Commission, 529 plan rules state that the money you withdraw must be used for qualified higher education expenses. These expenses include tuition, fees, books, and room and board (if the student is attending school at least half-time) for college and graduate school. If used for any other purpose, you may be subject to income taxes, plus an additional 10 percent federal tax penalty on your earnings. Keep in mind that you, the 529 plan owner, are the one subject to taxation and any penalties – not your beneficiary. There can be exceptions to this rule. For example, if you close the account due to your beneficiary (the student) passing away or has become disabled, or if money is withdrawn because it’s no longer needed due to the student receiving scholarship funds.

If you want to learn more about 529 plans and 529 plan rules, visit the Protective Learning Center.

1. http://trends.collegeboard.org/college-pricing/figures-tables/tuition-and-fee-and-room-and-board-charges-over-time-1973-74-through-2013-14-selected-years


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All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective Life or its subsidiaries.

Neither Protective Life nor its representatives offer legal or tax advice. We encourage you to consult with your financial adviser and legal or tax adviser regarding your individual situations before making investment, social security, retirement planning, and tax‐related decisions. For information about Protective Life and its products and services, visit www.protective.com.

529 Plan

According to the U.S. Securities and Exchange Commission, 529 plan rules state that the money you withdraw must be used for qualified higher education expenses. These expenses include tuition, fees, books, and room and board for college and graduate school. This article looks at what may happen when these 529 plan rules are not adhered to. For more information, visit our learning center.

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