What Can a College Savings Plan Be Used For?
The value of higher education may be priceless, but financing it can be a daunting financial challenge. As college costs continue to rise, parents and guardians are increasingly seeking reliable college savings methods to secure their child’s future.
“One powerful tool in the arsenal of college and other qualified higher education savings are the 529 College Savings Plans,” says Richard Lerner, Senior Vice President, Investments at David Lerner Associates, Inc.
All states (except Wyoming) have a 529 plan. According to the College Savings Plans Network (CSPN), the plans have grown in popularity over the years. As of December 31, 2022, there are 16 million 529 savings accounts with an average balance of $25,630.
But what exactly can this plan be used for?
In this article, we explore the versatility and potential of a 529 College Savings Plan, shedding light on the essential expenses it covers and ensuring that your loved ones have the necessary financial support to thrive during their college years.
529 Qualified College Expenses Generally Include:
- Tuition and Fees
The primary purpose of a 529 College Savings Plan is to cover the ever-increasing cost of tuition and fees at eligible educational institutions. This includes elementary or secondary school (K–12), undergraduate and graduate programs, vocational schools, and even certain international institutions.Whether your child attends a public or private college, a 529 plan can ease the burden of tuition expenses, providing them with a solid foundation for a bright future.
- Books and Supplies
College education entails more than just tuition; it also involves the purchase of textbooks, supplies, and other essential learning materials. A 529 College Savings Plan can be used to cover these expenses, ensuring that your student is well-equipped to excel in their academic pursuits. Only learning materials included in the required reading for the course qualify. Also, schools set the budget limit for books and supplies, so check with the institution on the allowable amount for every academic year.
- Computers, Software, and Internet Access
In today’s digital age, access to technology is vital for academic success. A 529 plan allows funds to be used to purchase computers, laptops, peripherals, computer software, and internet access or related services. These facilitate a seamless learning experience and prepare students for the demands of the modern world. The beneficiary can use the device or software during any of the years they’re enrolled at an eligible institution.
- Room and Board
Living expenses are a significant aspect of college life. A 529 College Savings Plan can cover room and board costs, whether your child chooses to reside on-campus or in housing not owned or operated by the college. This provision allows them to focus on their studies and personal growth without financial strain. However, it’s worth mentioning that if your kid plans to live off campus, you cannot claim expenses above the institution’s estimates for room and board for attendance there.
- Special Needs Equipment
For students with special needs, the costs of adaptive equipment and assistive technology can be substantial. A 529 college savings plan can be a valuable resource, ensuring that students with unique requirements can access the tools and resources necessary to thrive academically.
- Student Loans
The list of qualified expenses expanded further in 2019 with the enactment of the SECURE Act. A 529 College Savings Plan can also be used to repay student loan debt in certain situations. While it’s always encouraged to utilize the plan’s funds for qualified educational expenses directly, this flexibility can provide a safety net for borrowers who may need support with loan repayment. However, there’s a lifetime limit of $10k in student loan payments that can be made with 529 funds penalty-free. An extra $10k can be used to repay student loans held by each of the beneficiary’s siblings.
A 529 College Savings Plan opens doors of opportunity, providing a comprehensive financial solution for funding higher education.
From covering tuition and fees to supporting living expenses and special needs equipment, this versatile plan empowers families to invest in their child’s future confidently.
As a personal finance advisory and investment firm, we recognize the potential of a 529 plan in securing your loved ones’ educational journey.
Our interactive College Savings Calculator lets you approximate monthly contributions based on factors like your current savings, your child’s age, current savings, education cost inflation, etc.
By understanding the breadth of expenses a 529 plan can cover, we can guide you in crafting a tailored college savings strategy that sets your child toward academic excellence and lifelong success!
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.