Can You Use 529 Money to Buy a House? Penalties and Exceptions

You can use 529 money to buy a house, but you shouldn’t: a home purchase is not a qualified education expense, so the earnings portion of the withdrawal gets taxed as ordinary income and hit with an additional 10% tax. Section 529 of the tax code has no first-time homebuyer exception, no real estate carve-out, and no waiver that fits a down payment or a mortgage. If your goal is student housing rather than a purchase, the plan does cover rent, utilities, and food within limits. And if the beneficiary simply doesn’t need the money, there are two ways to redirect it without a penalty.

Why a House Doesn’t Qualify

Qualified 529 expenses are the costs of being enrolled: tuition, required fees, books, supplies, and equipment at an eligible postsecondary school, plus room and board for students enrolled at least half-time.¹ A house is a capital asset that you keep and that often gains value. Nothing in Section 529 treats the purchase of real estate as an education cost, and that stays true even if the student ends up living in the house while attending college.

Some readers come to this question because they know traditional and Roth IRAs let you pull up to $10,000 penalty-free for a first-time home purchase. That exception lives in a different part of the tax code and does not extend to 529 plans. There is no homebuyer carve-out here. Buying property with 529 funds is a non-qualified distribution, full stop.

What It Costs If You Withdraw Anyway

Two things happen to the earnings portion of a non-qualified 529 withdrawal. The earnings are added to your taxable income for the year and taxed at your ordinary federal rate.² On top of that, a 10% additional tax applies to those same earnings under Section 529(c)(6).¹

Your original contributions are not taxed again because they went in with after-tax dollars. Only the investment growth is taxed and penalized. Then there is a state-level consequence many account owners overlook: more than 30 states offer an income tax deduction or credit for 529 contributions, and most of those states recapture the benefit when you take a non-qualified distribution. So a withdrawal to buy a house can generate a federal tax bill, a federal penalty on the earnings, and a state clawback of deductions or credits you claimed in prior years.

The plan administrator reports the full withdrawal on Form 1099-Q, split between contributions and earnings, and it is on you to calculate the taxable portion when you file.³

The Housing Costs a 529 Does Cover

If your real question is whether a 529 can help pay for a place to live during school, the answer changes. Room and board qualifies when the beneficiary is enrolled at least half-time in a degree or credential program at an eligible institution. That covers rent, utilities, and food, whether the student lives on campus or off.¹

For off-campus housing, the tax-free amount is capped at the school’s published cost of attendance allowance for room and board. Every school that participates in federal financial aid publishes this figure, and it is the legal ceiling for your distribution. Rent and food above that allowance become a non-qualified distribution. For on-campus housing, the cap is the greater of the school’s cost of attendance allowance or the actual amount the school charges.¹

You can find the cost of attendance figure on the school’s financial aid website or by asking the aid office directly. Save rent receipts, utility bills, and grocery expenses so you can show the withdrawal stayed within the allowance if the IRS ever asks.

What the plan will not cover under room and board is a mortgage or the purchase price of a home. Rent paid to a landlord counts. A mortgage payment on a house the student or family owns does not fit the statute’s room and board framework, and buying the property outright with 529 money is a non-qualified distribution.

Better Options for Unused Funds

If the underlying situation is that the beneficiary has finished school and money remains in the account, there are two ways to preserve it without paying the tax and penalty.

Change the Beneficiary

You can change the beneficiary of a 529 to another qualifying family member at any time, with no tax and no penalty. The definition of family here is broad: the current beneficiary’s spouse, children, siblings, parents, nieces, nephews, aunts, uncles, in-laws, and first cousins all qualify.¹ You can also name yourself if you plan to take continuing education. The money keeps growing tax-free and stays inside the 529 system.

Roll It Into a Roth IRA

Under the SECURE 2.0 Act, starting in 2024 a 529 beneficiary can roll unused funds directly into a Roth IRA in their own name, subject to several conditions:⁴

The 529 account must have been open for more than 15 years.
The rollover in a single year cannot exceed the annual Roth IRA contribution limit, which is $7,500 for 2026.⁵
Total rollovers across all years cannot exceed $35,000 per beneficiary.
Contributions made to the 529 in the last five years, and their earnings, cannot be rolled over.
The transfer must go trustee-to-trustee, directly to the beneficiary’s Roth IRA.

Over several years, this route can move up to $35,000 from a 529 into a retirement account that grows tax-free for decades. For a family whose child did not use all the funds, that is a materially better outcome than accepting the tax and penalty on a withdrawal aimed at a home purchase.

The Narrow Cases Where the Penalty Is Waived

The 10% additional tax on earnings is waived in a short list of situations. Ordinary income tax on the earnings still applies; only the penalty is removed.

The beneficiary receives a tax-free scholarship, in which case you can withdraw up to the scholarship amount without the penalty.
The beneficiary dies or becomes permanently disabled.
The beneficiary attends a U.S. service academy, in which case you can withdraw an amount equal to the cost of attendance without the penalty.

These exceptions come from Section 529(c)(6).¹ None of them touches a home purchase. Buying a house with 529 money always triggers the full tax and the 10% additional tax on earnings, and if you claimed a state benefit for the contributions, expect the state to want that back too.

1
Office of the Law Revision Counsel. 26 USC 529 – Qualified Tuition Programs
2
Internal Revenue Service. Topic No 313, Qualified Tuition Programs (QTPs)
3
Internal Revenue Service. About Form 1099-Q, Payments From Qualified Education Programs (Under Sections 529 and 530)
4
Internal Revenue Service. Publication 590-A (2025), Contributions to Individual Retirement Arrangements (IRAs)
5
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500