Will the 529 Fund Apply to Trade School

Starting a 529 plan can effectively cover various qualified education expenses at post-secondary institutions, like four-year universities and vocational schools. These expenses include tuition, fees, books, supplies, and board costs such as meal plans and groceries. 

Learn everything you need to know about how to benefit from a 529 Fund in this guide.

What is a 529 Fund?

A 529 college savings plan is for qualified education expenses, such as school and college expenses. The money you save in the fund grows without being taxed. And the beauty is that anyone, including friends and family, can contribute, benefiting from tax savings and potential state deductions.

If you don’t use all the money for school, $35,000 may be rolled over to a Roth IRA retirement. The account must be 15 years old to qualify for Roth IRA transfers. Each state has different rules on how much you can save, but there’s no income limitation based on your family’s income. In Washington State, the limit is $500,000.

Who is eligible for a 529 Fund?

The 529 Fund is a broad and versatile savings plan that covers a wide array of educational pursuits—it’s not limited to traditional college tuition. Students attending post-secondary institutions participating in federal student aid programs are eligible, whether pursuing an undergraduate degree, a graduate school program, or vocational or advanced degrees.

Regarding qualified expenses, vocational or college students can use 529 funds for college expenses, like tuition, books, supplies, and room and board, provided the student is enrolled at least half-time. These expenses must support the beneficiary at an eligible institution. So, whether you’re pursuing a traditional 4-year college path or technical school, a 529 fund can be a crucial resource for managing educational expenses.

Some non-qualified withdrawal expenses are mortgage payments, transportation costs, health insurance, cell phone bills, and student loan payments.

If you plan to attend a trade school, consult with an advisor on apprenticeship programs that are eligible for funds.

What are the 529 plan options in Washington State?

In Washington State, you have two choices for opening a 529 plan. One option is the Guaranteed Education Tuition (GET) Program, and the second is the DreamAhead College Investment Plan.

The GET Program is a prepaid tuition plan that protects your investment against rising tuition costs. The price you pay now will cover future educational expenses for the state school.

Meanwhile, the DreamAhead Plan lets you pick from different investment options based on how much risk you’re comfortable with and the student’s age. Unlike GET, it’s not guaranteed by the state, so your investment might grow at a different rate than tuition costs, meaning you could potentially lose money.

Both the GET and DreamAhead plans offer significant tax benefits, as the earnings on your investments grow tax-free, and withdrawals for eligible costs are not subject to federal income tax. Eligible expenses include tuition, fees, books, supplies, and room and board at eligible schools.

This includes traditional universities and vocational programs such as cosmetology schools and certain international schools. Additionally, funds from 529 plans in Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming can be used for K-12 tuition, further expanding their utility.

529 plans can be used to repay up to $10,000 in student loans, making them a versatile option for managing education-related costs across various educational institutions and stages of learning.

In Washington State, 529 qualified fees can apply to K-12 tuition and still reap tax benefits.

How will a 529 Fund benefit you?

A 529 Fund is a great way to save for your education with many benefits:

• Money in a 529 Fund grows without income taxes if used for qualified fees like college tuition, K-12 tuition, and student loan repayment.
• Contributions to a 529 Fund may lower your taxable income.
• There are no income restrictions.
• Anyone can contribute to a 529 Fund for your post-secondary educational institution.
• A 529 Fund can help manage the entire cost of education.
• Saving with a 529 Fund can eliminate student loan debt and the need for private loans.
• Students may also use scholarship money in conjunction with plan money.
• A tax advisor or financial professional can help maximize the tax-free withdrawals, educational savings, and leftover funds during and after your post-secondary education. 

Main takeaways of the 529 plan

Here are the primary takeaways from using the 529 plan: 

• A 529 plan offers significant benefits for saving for education expenses, including tax deductions on contributions, with no eligibility restrictions based on income or resident alien status. It can also eliminate the need for student loan repayment.
• Plan funds can be used for a variety of qualified expenses such as tuition, board expenses, housing costs, and K-12 tuition expenses. Contributions can be made annually up to a specified limit, and the investment objectives of the plan can be tailored to meet your financial goals.
• Social security numbers are required for account holders and beneficiaries. Consulting a financial advisor can help optimize your 529 plan strategy to cover costs associated with degree programs and other educational needs.

For those planning their education at secondary schools with a cosmetology program, visit Evergreen Beauty College to learn about our trade school programs, eligible for the 529 plan. Learn how to transform your love for beauty into a career. 

FAQ: Rules for the 529 plan

What are the restrictions?

The IRS stipulates that contributions can’t exceed the amount required for eligible expenses. Note that there are no eligibility requirements or limits based on income.

What are the qualified education expenses?

Students can use a 529 plan to cover a variety of qualified education expenses at four-year schools, grad schools, and post-secondary institutions with access to financial aid programs. 

Qualified costs will apply to both public and private colleges, as well as certificate programs. These qualified costs include tuition, fees, books, supplies, and board costs, such as meal plans and groceries.

The expenses must adhere to the plan rules, which stipulate that the student is enrolled at least half-time in an eligible institution. Additionally, 529 funds can be used for registered apprenticeship programs and eligible for federal student aid. Some non-qualified withdrawal rules are spending the funds on fees unrelated to the eligible education institution, such as variable and fixed expenses, like your rent or phone bills. The funds will cover cost of attendance and school-related bundled costs. 

A refund without penalty only applies if the account is 15 years old or older.

Are the funds subject to federal income taxes?

The funds from the 529 funds are not subject to federal income taxes. You can withdraw money from a 529 plan to pay for qualified education expenses, such as tuition, fees, books, supplies, and room and board, and you don’t have to pay any taxes on the money withdrawn. However, if you use the funds for non-qualified expenses, such as travel, insurance, or non-educational rent, the earnings portion of the withdrawal (the profit made from the investment) will be subject to federal income tax.