College isn’t getting any cheaper, and 529 accounts offer tax advantages while letting you grow funds to pay for future education. But, what can 529 funds be used for?

The short answer: 529 funds can be used for qualified education expenses: college tuition and fees, required books and supplies, computers, room and board within published limits, K-12 tuition up to $20,000 per year (for 2026), registered apprenticeship and credentialing costs, and up to $10,000 of student loan repayment. Use the money for anything outside those categories, and the earnings portion of the withdrawal is generally subject to income tax plus a 10% penalty.

While these accounts can be financially beneficial, the rules and limitations are important to know, so you aren’t hit with unpleasant surprises later.

Required expenses, no frills

529s cover required expenses only, but what qualifies as “required”? IRS Publication 970 defines the categories:

• Tuition and fees can be fully covered for college and graduate school, but for K-12 the limit is $20,000 per year as of 2026 (raised from $10,000 under the One Big Beautiful Bill Act, and subject to change).
• Books are covered only if they are required for a course. College bookstores can be fun to shop with all the school’s latest swag, but be careful of blindly covering any purchase that comes through on the student’s account, because only required items for the course will apply.
• Supplies are similar to books: only those required for courses qualify.
• Computers and related equipment such as internet routers are covered, but smartphones aren’t.

What the IRS doesn’t consider “required”

• Transportation and traveling costs: The IRS doesn’t consider transportation a “required” expense, no matter how far the student has to travel to attend class.
• Health insurance: The IRS doesn’t see student health insurance as a qualified expense or required for attendance.

Pro Tips:

• Have 529 distributions made payable to and sent directly to the school where possible to reduce the risk of making a non-qualified distribution subject to taxes and penalty.
• 529 withdrawals for education expenses might decrease your eligibility for education tax credits, such as the American Opportunity Tax Credit or Lifetime Learning Credit. If you qualify for those credits, you’ll need to weigh whether you’d like to spend 529 funds now or let them grow and compound while taking the education credits. Consider reviewing the timing with your financial advisor or CPA.

Off-campus room & board — what to watch out for

Room and board are necessary and can add a substantial amount to your college bill. Using 529 money to cover on-campus room and board is straightforward because it’s a qualified expense. But when using 529 funds to pay for off-campus room and board (including apartment rent and groceries), keep in mind that the amount you take from a 529 for these costs can’t exceed the greater of the following two amounts:

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

Thankfully, many schools publish a page on their websites detailing the cost of attendance. You can use that as a reference or contact the school to be sure.

That limit can have a real tax impact. Say a student rents an off-campus apartment for $2,200 a month, but the school’s published room-and-board allowance is only $1,500. Over a 12-month lease, that’s $8,400 in housing costs that wouldn’t qualify for tax-free 529 withdrawals. If 40% of the withdrawal comes from account earnings, approximately $3,360 would be subject to ordinary income tax. For a family in the 32% bracket, that could mean roughly $1,075 in federal income tax, plus a $336 penalty on the earnings portion.¹ Before using a 529 to cover off-campus housing, check the school’s published allowance. The amount you’re paying in rent isn’t necessarily the amount you can withdraw tax-free. 

Pro Tips:

• Keep careful records of those rent and food payments if sent directly to the student. Consider setting up a dedicated bank account the student can access to receive 529 distributions earmarked for rent and food.
• Purchase qualified and non-qualified items separately and hold onto the receipts for qualified items.

Beyond the traditional college setting

529 plans aren’t limited to strictly college expenses anymore. Here are some other ways you can use the funds:

• K-12 tuition, up to $20,000 per year for 2026 (private, public, or religious institutions; limit subject to change). Eligible expenses now also include curriculum and instructional materials, online education materials, qualified tutoring by non-relatives, fees for standardized, AP, and college admission exams, dual enrollment costs for college courses taken in high school, and educational therapy services for students with disabilities.
• Apprenticeships and credentials. Not everyone chooses college. Tuition, fees, equipment, books, and supplies for registered apprenticeship programs are qualified, and as of 2026, so are many postsecondary credentialing costs, including exam fees required to obtain or maintain a professional credential and the continuing education needed to keep it in good standing.
• Student loan repayment, up to $10,000 tax- and penalty-free. This is a lifetime limit per person, and it can apply to loans belonging to you, your spouse, your child, or your grandchild. Note that you can’t claim a student loan interest deduction on interest paid with this money.

Pro Tip:

Consider the trade-offs when using 529s for non-college expenses: you may be giving up longer-term growth potential from compounding tax-free earnings if you spend the funds on K-12 education, or a beneficial tax deduction on student loan interest.

What happens to unused 529 funds?

Overfunding can be a real worry for families when a scholarship arrives, a child picks a less expensive school, or plans change entirely. You have options, and none of them requires draining the account and eating the penalty.

You can change the beneficiary to another qualifying family member, leave the account invested for graduate school or a future grandchild, or, since 2024 under SECURE 2.0, consider transferring unused 529 funds to a Roth IRA for the same beneficiary. The rollover comes with some conditions:

• The 529 account must have existed for at least 15 years.
• Contributions (and their earnings) from the most recent 5 years can’t be transferred.
• Annual transfers are capped at the year’s Roth IRA contribution limit ($7,500 for 2026, subject to change), and the beneficiary needs earned income of at least the amount transferred.
• The lifetime maximum is $35,000 per beneficiary, though notably, the usual Roth income limits don’t block these transfers.

Because the rollover rewards older accounts, this can be one more reason to start early — and to think through how much to save for college rather than defaulting to a round number.

Does your state add its own tax benefit?

The federal rules above apply everywhere, but many states layer their own incentive on top: a state income tax deduction or credit for 529 contributions. Virginia, for example, allows a deduction of up to $4,000 per account per year for 2026, with a unlimited carry forward for any contributions that exceed the annual deduction limit, and contributors age 70 and older can deduct their full contribution in that tax year. The details differ meaningfully by state, so if you’re a Virginia taxpayer, the Virginia 529 tax deduction rules are worth reading before your next contribution. All state figures are subject to change.

Qualified vs. non-qualified: the quick reference

Common 529 Questions

Can I use 529 funds for rent?

Yes, if the student is enrolled at least half-time. Off-campus rent is qualified up to the room-and-board allowance in the school’s published cost of attendance. Amounts above that ceiling are non-qualified.

Can 529 funds be used for groceries?

Yes. Food counts as part of room and board, subject to the same cost-of-attendance ceiling as rent. Keep receipts, and keep grocery purchases separate from non-qualified items.

Can I buy a car with 529 funds?

No. Transportation costs (including a car, gas, insurance, and parking) aren’t qualified expenses, no matter how the student gets to campus.

What happens if I use 529 money for something that doesn’t qualify?

The earnings portion of a non-qualified withdrawal is generally taxed as ordinary income plus a 10% penalty. Exceptions can apply: for example, the penalty (but not the tax) is typically waived on withdrawals up to the amount of a scholarship.

What happens to a 529 that never gets used?

Nothing forces you to liquidate. You can change the beneficiary to another family member, hold the account for future education, or roll up to $35,000 (lifetime, for 2026, and subject to change) into a Roth IRA for the beneficiary once the account is 15 years old.

What to Do Next

A 529 plan can be a great option for covering education costs, thanks to the tax advantages and potential compounding. The rules reward families who know them and can surprise those who don’t, so a little planning around what qualifies — and what to do with what’s left over — goes a long way.

Want help figuring out how to maximize the benefits of your 529 and see how college savings options fit into your overall wealth strategy? Our education funding planning work connects these decisions to everything else in your financial life. Interested in our Complimentary Wealth Check as a no-pressure way to see where you stand? Let’s talk.

 

¹ This example is hypothetical and for illustration only. It does not represent any actual client, account, or outcome; individual results will vary based on your account’s earnings ratio, tax bracket, state rules, and personal circumstances.

Note: Monument is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. Please consult your CPA for tax advice.

Want to suggest a correction to this article? Email us at info@monumentwm.com. Please note that Monument Wealth Management and its advisors are not tax advisors, and this article is not a replacement for professional legal, accounting or tax advice.