Qualified 529 expenses in 2026: what the account pays tax-free, line by line
The tax break depends on the receipt, not on the account. Here is the IRS list a college bill is checked against, with the limits hidden in it.
Tax on this withdrawal
$725
You keep $5,275 of $6,000. Only the earnings part is taxed federally.
| Earnings part | $1,920 |
| Federal income tax at 22 % | $422 |
| 10 % additional tax | $192 |
| Virginia tax and add-back | $110 |
Scholarship exception: the 10 % is waived up to the tax-free scholarship, income tax still applies. Virginia: Va. Code 58.1-322.03(7): deductions are recaptured (regardless of the statute of limitations) in the year of any distribution or refund made for reasons other than qualified higher education expenses as defined in IRC 529, or the beneficiary's death, disability or scholarship. Invest529 Program Description does not treat rollovers to another state's plan or Roth IRA rollovers as non-qualified withdrawals, but no Virginia Tax statement on recapture for those was found.
Worked out by Radif Partners · How we calculate · federal rules from Public Law 119-21 and IRS Publication 970, state rules from each state · not tax advice
A 529 withdrawal is free of federal tax when it does not exceed the qualified costs of the same year, and the higher education list in IRS Publication 970 is short. Tuition and fees, books, supplies and equipment count when the school requires them. A computer, software and internet service count when the student is the main user during the years of enrollment. Room and board counts only for a student enrolled at least half-time, and only up to the larger of the school's housing and food allowance in its cost of attendance or the actual charge for housing the school owns or runs. Special needs services, required costs of a registered apprenticeship and up to $10,000 of student loans per borrower complete it, with K-12 costs up to $20,000 a year and credential programs on separate lists. Anything outside the list makes the earnings share of the excess taxable, plus 10 %. For a Virginia couple whose student rents above the allowance, $2,400 of rent paid from the account would cost about $290.
Three lists under one name
Publication 970 sorts the costs a 529 may pay into three groups: qualified higher education expenses at an eligible postsecondary school, qualified elementary and secondary expenses at a K-12 school, and postsecondary credentialing expenses, the newest group. The account does not need to know which one applies when it sends money. You do, because each group has its own limits, and because the tax-free part of a withdrawal is measured against the costs of the year it was taken.
An eligible postsecondary school is, in the words of the publication, generally any accredited public, nonprofit or for-profit college, university, vocational school or other institution that can take part in a student aid program of the U.S. Department of Education. Some schools located outside the United States qualify on the same test. The publication adds that virtually all accredited postsecondary institutions meet the definition, and the school itself can tell you whether it does.
| Higher education cost | Condition in Publication 970 |
|---|---|
| Tuition and fees | Required for enrollment or attendance |
| Books, supplies and equipment | Required for enrollment or attendance |
| Computer, peripherals, software, internet access | Used primarily by the beneficiary during the years of enrollment; game, sports and hobby software excluded unless mainly educational |
| Room and board | Student enrolled at least half-time; capped at the larger of the school allowance or the actual campus housing charge |
| Special needs services | Needed by a special needs beneficiary, in connection with enrollment |
| Apprenticeship fees, books, supplies, equipment | Required by a program registered and certified with the Secretary of Labor |
| Student loan principal and interest | Up to $10,000 per borrower for life, beneficiary or sibling |
Required by the school, or just useful?
The first two lines of the list carry a word that matters: required. A lab fee printed on the bill, the textbook on a syllabus and the drafting kit an architecture program tells first-year students to bring are inside. A second monitor the student would like, a printer for a roommate or a parking permit nobody asked for fall back on the general idea of the list, which is costs needed to enroll or attend. Keep the syllabus or the program's equipment page with the receipt. It is the cheapest proof you will ever have that a purchase was not optional.
Computers are the exception to that word. The list treats computer equipment, software and internet service as qualified whenever the beneficiary is the main user during any year of enrollment, with no requirement that the school ask for them. The IRS questions and answers on 529 plans add that equipment of a kind used mainly for amusement or entertainment is excluded, and Publication 970 leaves out software for sports, games or hobbies unless it is mostly educational. A laptop bought in August before the first term fits. A console for the dorm room does not, even if it plays a language course. The same page notes that these computer costs are a 529 benefit only and do not count for the education credits.
Housing: the cap most families meet
Room and board is where a qualified withdrawal most often turns partly taxable without anyone noticing. Two conditions apply. The student must carry at least half the full-time workload of the program, as the school defines it: at a school that calls 12 credits full-time, 6 credits is the line. Then the amount is capped at the greater of two figures, the allowance for room and board that the school built into its cost of attendance for federal aid, for that period and living arrangement, or the actual amount charged when the student lives in housing the school owns or operates.
A freshman in a residence hall billed $13,900 for the year while the published allowance is $11,800 can use the full $13,900, because the larger figure wins. The sophomore who moves off campus loses that second option. Suppose the apartment costs $1,250 a month for twelve months, $15,000 in all, and the school's off-campus allowance is $12,600. The $2,400 above it is not a qualified cost. If the 529 pays the whole lease and 32 % of the account is growth, a Virginia couple at $115,000 of taxable income would owe about $290 on that slice, federal tax and the 10 % additional tax included, at a Virginia rate of 5.75 %. The allowance is set for a given academic period, so months outside it deserve a question to the aid office before the account pays them.
Rent above the school allowance
Tax on this withdrawal
$290
| Earnings part | $768 |
| Federal income tax at 22 % | $169 |
| 10 % additional tax | $77 |
| Virginia tax and add-back | $44 |
Special needs, apprenticeships and loans
Three shorter entries finish the higher education list. Services a special needs beneficiary needs in connection with enrollment, such as a note-taker or adapted equipment, are qualified. An apprentice in a program registered and certified with the Secretary of Labor under the National Apprenticeship Act can use the account for the fees, books, supplies and equipment the program requires, without any college enrollment. Student loan payments, principal and interest, are qualified up to $10,000 over the life of each borrower, the beneficiary or a brother, sister, stepbrother or stepsister; the student loan page covers how siblings share it and why the interest deduction is lost on those dollars.
The other two groups have their own pages. K-12 costs, up to $20,000 a year per child from 2026, include tuition, curriculum, tutoring and test fees but not room and board, uniforms or school transport, which the Coverdell rules cover and the 529 rules do not (K-12 withdrawals). Licenses, certifications and exam fees outside a college fall under the credential rules (credential programs).
A K-12 bill against the yearly cap
Tax-free from the 529 this year (federal)
$20,000
| Federal cap per child, 2026 | $20,000 |
| Above the cap | $1,500 |
| Federal tax and 10 % on that part | $99 |
| Kansas treatment | Treated as qualified |
What the list leaves out
Publication 970 does not publish a list of forbidden costs for 529 plans; it names what qualifies, and anything else is outside. Reading the list closely gives the usual gaps. Travel to and from campus, a car and its insurance, health fees not required for enrollment, and housing beyond the allowance appear nowhere in it. Entertainment equipment and hobby software are excluded in so many words. At the K-12 level, room and board, uniforms and transportation are Coverdell expenses only.
Two subtractions also shrink the room. Tax-free help comes off first: the tax-free part of scholarships, Pell grants, veterans' benefits and employer assistance reduce qualified costs to what the IRS calls adjusted qualified education expenses. Costs used for the American opportunity or lifetime learning credit come off next (coordinating with the credits). What is left is the ceiling for the year's withdrawals.
Matching the year and the receipts
The IRS compares all 529 withdrawals of a tax year with the adjusted costs paid in that year. A spring tuition bill paid in December and reimbursed from the account in January lands in two different years, and the January withdrawal has nothing to match. If a school refunds a cost the account paid, the student can put the refund back into a 529 for the same beneficiary within 60 days and the problem disappears. If a semester of spending turns out to include $6,000 of costs that were never qualified, the calculator at the top shows the bill: about $725 for the Virginia couple, which is what a non-qualified withdrawal costs on its earnings share.
States start from the federal list, then some subtract from it, mostly at the edges: K-12 costs, credential programs, loan payments. College tuition, fees, books and housing within the allowance are the core that state rules are built around, and each state page says where its text departs from the federal list.