Withdrawals from 529 plan accounts are free from state taxes, where applicable, and free from federal taxes as long as the money is used for “qualified higher education expenses.” If you don’t use money for qualified higher education expenses, you may be subject to certain penalties.*
Qualified higher education expenses include tuition, books, supplies and equipment required for attendance. Room and board costs are also eligible when certain requirements are met. Students with special needs may have other necessary expenses, and those costs may also be eligible.
You can use the money at any accredited public or private higher education institution in any state and even at many colleges outside the U.S. That means a student can attend almost any two- or four-year college, university, vocational and technical school, graduate school or professional, medical or law school.
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* When withdrawals are used for non-qualified expenses, the earnings portion of the withdrawal will be subject to ordinary federal, any applicable state income tax and an additional 10% federal tax penalty.