What Expenses Qualify As Tax-Free Withdrawals From 529 Plans?


Quick Answer

Expenses that qualify for a tax-free withdrawal from a 529 plan must be related to college or post-secondary education expenses, such as tuition and fees, Fidelity explains. Room and board fees are only considered to be tax-free if the costs don't exceed the greater of the allowance for room and board included in the cost of attendance, and the exact amount charged if the student lives in housing operated by the educational facility.

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Full Answer

Qualified withdrawals are tax free as long as the total withdrawals for the year aren't greater than the child's adjusted qualified higher education expenses, Fidelity notes. To calculate those expenses, add up the fees and tuition, room and board, school-related special needs services and book fees. Deduct the costs already covered by tax-free educational assistance, such as Pell grants, tax-free scholarships, tuition discounts, tax-free employer assistance and the Veteran's Educational Assistance program. You also need to deduct the costs used to claim the Lifetime Learning tax credits or the American Opportunity credits.

Textbooks are considered an education expense, but this only includes books that are required reading for courses, according to Fidelity. Expenses for equipment used for entertainment or amusement is not considered a qualified tax-free withdrawal.

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