Can My College Savings Plan be Used for More than College?

by Amber Miller, CFP®, CSRIC™

College savings plans, which include 529 Plans, are a great tax advantaged way to save for college. And now they’re more! Originally, college savings plans existed to invest savings that could grow tax free and as long as you spent the money on college expenses, the withdrawals were tax free too. As an added bonus, many states offer a limited deduction for those that made the contributions.

In December 2017, the tax law changed for 529 plans. Here is a helpful overview of what has and has not changed:

What Has Changed

  1. K-12: “Qualified expenses” can now be used for K-12 tuition. There is a $10,000 limit per year in withdrawals.
    • This is big federal law change. Please note that not ALL states have adopted this change.  Please work with your planner and accountant to confirm how your state is treating these withdrawals so that you are not subject to reclaimed deductions and/or penalties.
  2. Student Loans: Up to $10,000 can be used toward qualified education loan repayments.
    • Again, this is a federal law, so check with your planner and accountant to double check for any penalties or taxes due in your state.
  3. Individuals with Disabilities and Their Families: 529 assets can be transferred to an ABLE account (for the same beneficiary or relative). This is still limited by the annual contribution limits to an ABLE account which is currently $15,000.
  4. Apprenticeships: 529 account can pay for “qualified expenses” if your apprenticeship program is certified with the Secretary of Labor. The qualified expenses include fees, books, supplies and required equipment.

What Has Not Changed

  1. Contributions are not pre-tax federally (no deductions or credits)
  2. Many states offer tax deductions or credits, up to a limit (talk to your planner for details about your state)
    • Some states even allow you to front load your contributions and carry forward the deductions into future years.
  3. The account can be invested, and all growth is tax free
  4. Withdrawals for “qualified expenses” are tax free.
  5. You can add to the account in the same year of your withdrawal, thus continuing to receive a state tax deduction/credit in eligible states.
  6. Contributions up to $15,000 per donor, per beneficiary (in 2020) qualifies for the annual gift tax exclusion.
    • There is also an option to make up to a 5-year lump sum contribution and spread the gift over 5 years, allowing for up to $75,000 per donor, per beneficiary to be contributed. Ask your planner if you are considering this strategy – there are other gift tax considerations that may change the allowed amount.
  7. You can change the beneficiary at any time (this can usually be done tax-free, but check with your planner first.  
  8. Funds can be used for “qualified expenses” in college including tuition fees, room & board, textbooks and other essentials.
  9. Funds can be withdrawn and unlimited amount of times for college as needed, i.e. you can use the entire account in any year you choose. 

As parents and students anxiously await how the fall 2020 school year will be taught, the changes to the 529 plan can help provide options. One thing that is certain – a small amount saved on a regular basis can have a big effect.  If you’d like to consider opening a 529, contact your TPC planner.


Amber Miller, CFP®, CSRIC™, is a Sr. Financial Planner in the Twin Cities office of The Planning Center, a fee-only financial planning and wealth management firm. Email her at amber@theplanningcenter.com.

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