What Can You Use a 529 Plan For? Complete Qualified Expenses List for 2026

Non-qualified withdrawals trigger two costs: ordinary income tax on the earnings portion of the withdrawal, plus a 10% federal penalty on those earnings. The 10% penalty applies only to earnings, not to your contributions (since contributions were made with after-tax dollars). Example: if you withdraw $10,000 from a 529 where half is contributions and half is earnings, you owe income tax plus 10% penalty on the $5,000 earnings portion. The $5,000 contribution portion has no tax or penalty. Exceptions to the 10% penalty (but not income tax) include: scholarships received, attendance at a U.S. military academy, death or disability of the beneficiary, and taking the American Opportunity Tax Credit.

Yes, up to $10,000 per beneficiary lifetime under the SECURE Act (effective 2019). This provision allows you to use 529 funds to pay down existing student loan debt for the beneficiary or their siblings. The $10,000 limit is a lifetime cap per beneficiary, not per year. This means if you have a $50,000 529 balance when your child graduates with $40,000 in student loans, you can use $10,000 of the 529 tax-free to pay down the loans. The remaining $30,000 can be transferred to another beneficiary, rolled to a Roth IRA (up to $35,000 lifetime under SECURE 2.0 after 15 years), or withdrawn with income tax and 10% penalty on earnings.

Room and board qualifies as a 529 expense for students enrolled at least half-time at an eligible educational institution. The maximum qualified room and board expense is either the actual amount charged by the school (if the student lives on campus) or the school's published 'cost of attendance' allowance for room and board (if the student lives off-campus). You cannot deduct more than the school's published allowance even if your actual rent is higher. If the student is enrolled less than half-time, room and board does not qualify at all.