529 Plans Aren't Just for College Anymore
From kindy to college alternatives, how to use your education savings plan.
Susan Dziubinski: Hi, I'm Susan Dziubinski with Morningstar. Not long ago, withdrawals from 529 savings plans could only be used to pay for college expenses, but that's changed in recent years. Today, investors can use these vehicles to help pay for other educational expenses that fall outside of the traditional four-year college experience. Joining me today to discuss some other ways to use 529 plan assets is Adam Millson. Adam is an analyst with Morningstar's Multi-Asset Funds Research team and the author of Morningstar's latest report on 529 education savings plans.
Hi, Adam. Nice to see you.
Adam Millson: Nice to see you. Thanks for having me.
Dziubinski: Let's talk a little bit about, first, what many might consider the standard use of 529 education plans, which is to cover the costs of college. Besides tuition, what other college-related costs can a 529 plan help pay for?
Millson: Sure. Absolutely. And tuition, obviously, is first that comes to mind, given the cost. So, it makes sense there. But you can actually expand the use of those savings into fees. You can use it for books and supplies. You can use it for computers or even computer-related equipment. And you can even use it for room and board, but with room and board, there are some qualifications that you would need to meet to make sure you can use it there. But it is expanded outside of just tuition. You can use it for a variety of different things in college.
Dziubinski: Now, many people don't pursue the traditional four-year college education. So, what other types of postsecondary training and education can one use a 529 plan for?
Millson: In 2019, with the passage of the Secure Act, it opened up education savings and the qualified expenses there from just maybe your four-year degree and those different items I just talked about to apprenticeship programs. So, those actually can span financial services, healthcare, construction, industrials, a variety of different areas, and you can use those expenses for apprenticeships, and that actually also opened it up for student loan repayment as well. So, you can use that up to $10,000. So, they are expanding, which is great for education savers.
Dziubinski: And then, in some states, you can also use 529 plan savings to cover private K–12 education, and that was also part of the Act in 2019, right?
Millson: It was actually in 2017: the Tax Cuts and Jobs Act. When that was passed, it opened to K–12. So, yes, as an education saver, you could pull those assets out and maybe your beneficiary is in elementary school, you can use it for those expenses as well, which is great for savers.
Dziubinski: And then, lastly, families can transfer 529 assets from one family member to another if the original beneficiary doesn't plan to use them or hasn't used them. How does that work?
Millson: Absolutely. So, you can transfer the assets. Say, the beneficiary doesn't use all of the assets, or they choose to go a different route that doesn't qualify for the education savings, you can transfer those assets to a different beneficiary as long as they qualify as a member of the current beneficiary's family. And if that's the case, then it is a tax-free move of those assets. One thing you would want to keep in mind when you are moving the assets is the investment that the assets are actually in. If the current beneficiary, say, is later in their education career, so maybe later in high school, what they're invested in now might be different than the new beneficiary you're moving the assets to, say, they're younger maybe, first or second grade, where you want those assets parked and invested may be different. That's something to keep in mind when you're moving them.
Dziubinski: Well, Adam, thank you so much for talking to us a little bit today about these other uses for 529 plan assets. We appreciate your time.
Millson: Absolutely. Thanks for having me.
Dziubinski: I'm Susan Dziubinski with Morningstar. Thanks for tuning in.