Tax benefits of 529 plans extend beyond traditional colleges

Is your child or grandchild pursuing educational goals after high school, though not at a traditional four-year college? If so, you may have decided a 529 plan, sometimes called a 529 college savings plan, is not for you. But funds in 529 plans can be used, tax-free, for qualified tuition, books, and computer expenses at eligible technical schools and community colleges.

The tax code definition of "eligible educational institution" is broader than you may think, and includes post-secondary schools that can participate in a student aid program administered by the Department of Education. These include vocational or trade schools such as welding or cosmetology, as well as community colleges offering two-year associate degrees.

When students attend these eligible educational institutions, distributions from a 529 plan are not taxable as long as the total distribution is less than or equal to qualified education expenses. That's true even if the distribution includes earnings in the account, such as dividends received from stock investments.

To learn if the educational institution your child is interested in attending qualifies, you can ask the school or check a list of participating schools at the website of the U.S. Department of Education.

Remember, the expenses must meet other requirements under the rules to be counted as tax-free 529 plan distributions. For example, amounts paid for room and board must be incurred by a student who is enrolled for at least half the full-time academic workload.

Contact us for more information about the tax benefits of 529 plans.