By Laura Gottlieb, Esq. of Boyle Feinberg PC and Shannon Luschen, Law Clerk
While funds from a 529 college savings plan can be used to pay for a secondary education, not all expenses qualify.
Qualified educational expenses, as established by the IRS, include all such expenses related to enrollment or attendance at an eligible educational institution1. Parents are allowed to distribute funds from the 529 account to cover these qualified educational expenses without incurring tax penalties.
These qualified educational expenses include:
- The expenses required for enrollment or attendance. These include:
- Tuition and fees.
- Books, supplies, and equipment.
- Expenses required for special needs services needed by a special needs beneficiary.
- Expenses for room and board for students enrolled at least half-time. These expenses cannot exceed:
- The allowance for room and board as determined by the school’s “cost of attendance” figures for financial aid purposes for a particular academic period and living arrangement of the student.
- The actual amount charged if the student resides in housing owned or operated by the institution.
- The purchase of a computer or peripheral equipment, computer software, or internet access and related services if it is to be used by the beneficiary during any of the years that the beneficiary is enrolled in the institution.
Tuition & Fees
The tuition and fees from the University of Illinois for the 2017-2018 academic school year amount to $15,868-$20,872 for in state students. This figure depends on the amount of credit hours the student takes. Various fees from the University of Illinois include, but are not limited to, health service fees, health insurance fees, library and information technology fees, service fees, and transportation fees for ride services on campus.2
Books & Equipment
Expenses covered under this category include all mandatory textbooks for courses. Optional course books or study guides do not qualify. Equipment is mandatory safety equipment for classes, like goggles for laboratory classes or atom building blocks for science glasses.
Room & Board
The expenses for room and board cannot exceed the amount the school includes in its “cost of attendance” figures for federal financial aid purposes. In the event your child decides to live off-campus in private housing, you are allowed to contribute funds from a 529 account up to the amount that the institution requires for its on-campus dorm housing. You cannot claim the excess expenses if the off-campus housing expenses exceed that of the university owned ones. The present rate for room and board for the 2017-2018 academic school year at the University of Illinois is $11,308.
Furnishing an apartment does not qualify as a qualified educational expense. These types of expenses are called lifestyle expenses, and they are not applicable for 529 distributions. Other lifestyle expenses may include clothing costs, sports or activity fees, as well as various social fees. Transportation costs, other than those associated with getting around campus and are included in transportation fees, also do not qualify as educational expenses. Such expenses are not deemed necessary to attend college or another secondary education. 3
Computer Technology or Equipment
This past year, the IRS included computer costs and expenses as applicable educational expenses under a 529 plan. This means any computer and related peripheral equipment, such as a printer. Equipment used primarily for amusement or entertainment does not apply. “Computer technology” also includes computer software used for educational purposes. 4/sup>
EXTENT OF PAYMENT:
- college or trade school testing fees (cannot be paid by 529);
- college or trade school application fees (cannot be paid by 529);
- tuition (can be paid by 529);
- room and board (can be paid by 529 with cap);
- books mandated by the college classes taken (can be paid by 529);
- laboratory fees (can be paid by 529);
- activity fees (cannot be paid by 529);
- set up expenses for room or apartment(cannot be paid by 529);
- transportation expenses to and from school for 4 round trips total per year(cannot be paid by 529);
- student health fees (can be paid by 529);
- sorority/fraternity fees(cannot be paid by 529); and
- other expenses usually or ordinarily incurred in the acquisition of a college, university or trade school education (depends).
1.It is any college, university, vocational school, or other post-secondary educational institution eligible to participate in a student aid program run by the U.S. Department of Education. This includes most accredited public, nonprofit and privately-owned–for-profit postsecondary institutions.
3. http://admissions.illinois.edu/Invest/tuition http://www.savingforcollege.com/articles/avoid-these-529-withdrawal-traps
If you have any questions, please contact Laura Gottlieb at Boyle Feinberg Sharma at 312-376-8860.