Tips for Spending from a 529 Account and Education Cost Planning

Updated January 2026 with OBBB 529 Changes.

Saving for your child’s future education is a significant undertaking. While we can’t predict your child’s future, one way to save is through a 529 account designed for education costs. The logistics, rules, and best practices for spending those hard-earned savings can be somewhat mysterious. Using your 529 funds efficiently will help you minimize tax consequences and stretch your dollars further.

There are different approaches to saving for education costs, including Coverdell accounts and 529 accounts. Our clients typically use 529 account balances for their children’s education expenses. The appeal of 529s is the ability to grow funds tax-deferred and withdraw them tax-free for qualified purposes. There are also state tax benefits depending on where you live. For example, Pennsylvania offers a state tax deduction for your 529 contributions. Check your state to see which deductions may apply.

Qualified is key

The key to maximizing your 529 funds is using them for costs the IRS deems “qualified.” Most people think of 529 accounts as synonymous with college savings, but qualified expenses actually begin as early as elementary school and now extend to career training and professional credentials.

K-12 Expenses

You can use up to $20,000 per student, per year (effective tax year 2026), for elementary, middle, or secondary school expenses. The school may be public, private, or parochial.

Thanks to the One Big Beautiful Bill Act signed in July 2025, qualified K-12 expenses now include much more than tuition. You can use 529 funds for:

Tuition
Curriculum materials and books
Online educational materials and software
Tutoring services
Standardized test fees (SAT, ACT, AP exams)
Dual enrollment fees for college courses taken during high school
Educational therapies for students with disabilities

college expenses

When using the funds, you may move them from the 529 to your bank account or send them directly to the educational institution. It is entirely your preference. Many clients send funds directly to the educational institution to simplify record keepinTuition is the most straightforward use for 529 funds in college. You may also use the funds for room and board, but there’s a caveat: the room and board qualified expense cannot exceed the greater of:

The allowance for room and board included in the school’s cost of attendance for federal financial aid calculations, or
The actual amount charged if the student is living in housing operated by the educational institution

For example, if your student finds a lovely apartment off campus with friends where the rent is higher than the school’s estimate for housing, the excess would not be a qualified expense.

Studying abroad is a popular option, especially for junior and senior years. Room and board can be a qualified expense even when studying abroad. However, the costs to get there, transportation, and travel-related expenses are not qualified.

ancillary college expenses

Books and technology required for college add up quickly. Books on the class-required reading lists are eligible expenses. Computers and related equipment used primarily for educational purposes also qualify. However, smartphones fall outside the qualified expense category, even though students accomplish more and more on their phones.

If there’s an expense you’re on the fence about, the financial aid office can help you determine if it’s considered required and therefore falls in the qualified expense category.

Other uses for your 529 funds include college students enrolled in a summer program for college credit and college students studying abroad at eligible institutions.

credentialing and vocational programs

Here’s where 529 plans take a major leap forward. As of July 2025, you can use 529 funds for postsecondary credentialing programs. Not just traditional college degrees. This means the 529 has evolved from a “college savings account” into a “career investment account.”

Qualified credentialing expenses now include:

Trade school programs (welding, HVAC, cosmetology, EMT training)
Professional licensing exam prep and fees (CPA, bar exam, real estate license)
Apprenticeship programs
Certificate programs recognized under the Workforce Innovation and Opportunity Act (WIOA)
Continuing education required to maintain professional credentials

Covered costs include tuition, fees, books, supplies, equipment, and exam fees for these programs. Whether your child pursues a four-year degree, learns a skilled trade, or needs professional certification for their career, the 529 can help fund that journey.

Spending Logistics

When using the funds, you may move them from the 529 to your bank account or send them directly to the educational institution. It’s entirely your preference. Many clients send funds directly to the institution to simplify recordkeeping.

You must match your 529 withdrawals with your expenses and keep accurate records to prove that qualified expenses match or exceed the withdrawals. The withdrawals must occur in the same calendar year as the expense.

If you take more out of a 529 than your qualified expenses, you’ll face a penalty and taxes. Funds used for non-qualified expenses result in federal income tax on the earnings plus a 10% penalty.

For example, say you use 529 funds to pay for a child’s summer abroad trip that totals $2,000 in expenses, none of which are qualified. Assuming you’re in the 24% tax bracket, you’ll owe $480 in federal income tax plus $200 in penalties on the earnings portion—turning that $2,000 trip into a more expensive lesson about qualified expenses.

The 529 accounts may impact financial aid. The impact depends on who owns the account, their relationship with the beneficiary, and the timing of withdrawals.

Excess 529 Funds

A common question is: what if my child doesn’t use all the 529 funds? The good news is you have several options, and 529s are excellent generational planning tools.

Change the beneficiary. You can change the 529 beneficiary to another family member without tax implications. This includes siblings, parents, nieces, nephews, and even yourself.

Pay student loans. You can use up to $10,000 to pay existing student loans. This limit applies to loans in the beneficiary’s name or their siblings.

Roll to a Roth IRA. Under SECURE Act 2.0, you can convert remaining 529 funds to a Roth IRA for the beneficiary. The rules are somewhat restrictive: the 529 must have been open for at least 15 years, funds contributed in the past 5 years are off-limits, annual transfers are capped at the IRA contribution limit, and there’s a $35,000 lifetime maximum. This won’t fund a full retirement, but it’s a nice way to give a child a head start on retirement savings or use leftover funds efficiently.

Roll to an ABLE account. For beneficiaries with disabilities, you can roll 529 funds into an ABLE account. ABLE accounts are tax-advantaged savings accounts covering expenses like education, therapy, housing, and assistive technology. The One Big Beautiful Bill Act made this rollover option permanent, giving families long-term certainty in their planning.

Pass it on. 529 plans can be passed down through generations. When a 529 plan owner dies, the account gets a new owner. The beneficiary becomes the new owner and can select another beneficiary. This makes 529s useful estate planning tools that can benefit multiple generations of your family.

Putting It All Together

Your options for using 529 funds are broader than ever. From K-12 tutoring to trade school certifications to traditional college expenses, 529s have evolved into flexible education and career planning tools. Creating a strategy for the most efficient saving and eventual use of the funds should include considerations of taxes, financial aid implications, and future benefits.

However you choose to contribute to your child’s future, we can help you use those funds to make a positive impact.