According to the Internal Revenue Service (IRS), a 529 plan is typically used by families to invest money as a way to pay for future education. The 529 plan offers tax advantages that would not be available if you saved the same dollars elsewhere, because, most of the time, 529 plan earnings are not taxable. When it comes time to use the money you have saved in a 529, only certain expenses can be paid with that money.
Tuition and Expenses
You may pay for tuition and expenses related to an eligible educational institution with money that you saved, and interest earned, in your 529 plan. The IRS defines an eligible educational institution as just about any accredited public, nonprofit and private post-secondary schools. Eligible expenses can include books, supplies or equipment necessary to enroll or attend the institution.
As of 2009, computer technology is an expense that can to be paid from 529 plan funds. This was added to the list of eligible expenses under the American Recovery and Reinvestment Act of 2009. Computer technology includes any computer and related equipment such as a scanner or printer. This eligible expense does not include software or related devices used for entertainment or hobbies.
Special Needs Expenses
If the person benefiting from the 529 plan has special needs or requires special services to attend school, those costs are eligible, according the the IRS. The special needs must be connected to being enrolled at an eligible educational institution. An example of an eligible expense would be the cost associated with making a room handicapped-accessible for a student living in a dorm, if the school has not already adequately done so.
Room and Board
The IRS allows you to use the money saved and earned in a 529 plan to pay for room and board as long as the student is enrolled at least half-time. However, there are some limitations. The amount spent on room and board must be no greater than the amount determined by the institution as the allowance for room and board, or the actual amount charged for room and board by the institution for institution-owned housing. Otherwise, the expenses may not be eligible.