529 plan FAQs: Paying for school
What college expenses can I use the money for?
Money withdrawn from the 529 plan account can be used for a wide range of qualified higher education expenses, such as room and board, tuition, books, and computer equipment. Refer to your enrollment kit for a full list of expenses covered by your state's plan. You should receive the kit after opening the account—or it can be found on Fidelity.com on this page: Open and maintain a 529 plan account
Do I have to use the money for college expenses only?
Money from a 529 account must be used for qualified education expenses to avoid taxes and penalties. But in addition to college expenses, you can also spend up to $10,000 per year on tuition expenses for elementary, middle, and high school—private, public, or religious. It's important to know that the $10,000 annual limit is per beneficiary, not per account—the money can come from multiple 529 accounts. Any amount over that $10,000 limit will be subject to income tax and a 10% federal penalty tax.
Find out more by reading Viewpoints: 529s for K–12 tuitions: Does it work for you?
Additionally, the SECURE Act of 2019 expands the definition of a tax-free or qualified distribution from a 529 savings plan to include repayment of up to $10,000 in qualified student loans, and expenses for certain apprenticeship programs. The SECURE Act makes this change retroactive to distributions made after December 31, 2018.
How and when can I take distributions from the account?
When you have qualified expenses, you can take withdrawals federal income tax- and penalty-free. To avoid a tax bill, your qualified withdrawals must be in the same calendar year as the expense. For instance, if you buy textbooks in September 2020, and plan to take a withdrawal from the account to reimburse yourself—the withdrawal must be done in 2020.
You can withdraw money for nonqualified expenses too at any time, but you will owe federal income tax and the 10% penalty, in addition to any state or local income taxes and investment taxes on any earnings withdrawn.
For more information and a link to the withdrawal tool, read: Take money from my 529 account.
Will investing in a 529 plan affect eligibility for financial aid?
529 assets may have a relatively small effect on federal financial aid eligibility because they are considered assets of the parent in the Expected Family Contribution (EFC). Conversely, accounts that are considered assets of the child, such as an UGMA/UTMA account, tend to have a greater effect on federal financial aid eligibility in the EFC calculation. A 529 account owned by a grandparent or another person who is not the parent of the beneficiary could have more of an effect on financial aid.
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The UNIQUE College Investing Plan, U.Fund College Investing Plan, DE529 Education Savings Plan, AZ529, Arizona's Education Savings Plan, and the Connecticut Higher Education Trust (CHET) 529 College Savings Plan - Direct Plan are offered by the state of New Hampshire, MEFA, the state of Delaware, and the state of Arizona with the Arizona State Treasurer's Office as the Plan Administrator and the Arizona State Board of Investment as Plan Trustee, and the Treasurer of the state of Connecticut respectively, and managed by Fidelity Investments.
If you or the designated beneficiary is not a New Hampshire, Massachusetts, Delaware, Arizona or Connecticut resident, you may want to consider, before investing, whether your state or the beneficiary's home state offers its residents a plan with alternate state tax advantages or other state benefits such as financial aid, scholarship funds and protection from creditors.
Units of the portfolios are municipal securities and may be subject to market volatility and fluctuation.
Please carefully consider the plan's investment objectives, risks, charges, and expenses before investing. For this and other information on any 529 college savings plan managed by Fidelity, contact Fidelity for a free Fact Kit, or view one online. Read it carefully before you invest or send money.