How to Withdraw Money From a 529: Qualified Expenses and Taxes

To withdraw money from a 529 plan, log into your plan’s online portal, choose a payee, select the investments to liquidate, and enter the amount. The withdrawal stays free of federal income tax and the 10% penalty when the money pays for qualified education expenses in the same tax year the distribution is taken.

How to Request the Withdrawal

Most 529 providers handle withdrawals through their website or mobile app. You will usually need the account number, the beneficiary’s Social Security number, and the school’s information. Paper forms by mail are still an option at most plans if you prefer.

You have three choices for where the money goes:

Directly to the school, applied to the student’s billing account. This is often the cleanest way to handle tuition.
To the beneficiary, who then pays the expenses.
To you as the account owner, reimbursing yourself for expenses you already paid.

Once you submit the request, the plan sells shares at the next market close, which fixes the dollar value of the distribution. Electronic transfers typically arrive within a few business days; paper checks take longer. Build in time so the funds reach the school before its payment deadline.

Who receives the money also decides who receives the tax form. If the distribution went to the beneficiary or straight to the school on the beneficiary’s behalf, the Form 1099-Q is issued in the beneficiary’s name. If it came to you, the 1099-Q comes to you.¹

What Counts as a Qualified Expense

The distribution is tax-free only when it pays for expenses the IRS treats as qualified. For an eligible college, university, or trade school, that includes:

Tuition and mandatory fees required for enrollment.
Books, supplies, and equipment required for coursework.
A computer, peripheral equipment, software, and internet service used primarily by the beneficiary while enrolled. Software mainly for games or entertainment does not count.
Room and board, but only if the student is enrolled at least half-time. On-campus housing counts at whatever the school charges. Off-campus housing is capped at the room and board allowance in the school’s published cost of attendance for financial aid.
Special needs services the beneficiary requires in connection with enrollment.²

You can also use up to $10,000 per year from a 529 to pay tuition at an elementary or secondary public, private, or religious school. That annual cap covers K-12 tuition only, not books, supplies, or room and board at the K-12 level.³

Apprenticeship programs registered with the U.S. Department of Labor qualify, and the money can go toward fees, books, supplies, and equipment for the trade. And you can use 529 funds to pay down student loans, up to a $10,000 lifetime limit per beneficiary. A sibling of the beneficiary can receive a separate $10,000 toward their own loans from the same account. You cannot also deduct the interest on any loan payment made with tax-free 529 earnings.²

Match the Withdrawal to the Same Tax Year

Take the distribution in the same calendar year you pay the expense. If you pay a spring tuition bill in December but pull the money out in January, the withdrawal and the expense fall in different tax years, which can create a mismatch when the IRS reviews the return. The safest habit is to withdraw right around the time you pay the bill.²

There is one useful exception. Expenses for an academic period beginning in the first three months of the next year can count toward the prior year. So a December tuition bill for a term that starts in January can be paired with a December withdrawal.

Don’t Double-Dip With Education Credits

The same dollar of tuition cannot be used for both a tax-free 529 withdrawal and an education credit like the American Opportunity Tax Credit or the Lifetime Learning Credit. When it is, the IRS treats the overlapping piece of the 529 distribution as non-qualified, making the earnings taxable and potentially subject to the 10% penalty.⁴

A common way to handle this is to pay enough tuition from non-529 sources to claim the full credit, then use the 529 for everything else. To max out the American Opportunity Tax Credit, for example, you would pay $4,000 in qualified tuition out of pocket or with loans, and cover the rest of the qualified expenses from the 529.²

Keep Records and Handle the 1099-Q

The plan administrator sends Form 1099-Q early in the year after any withdrawal. If the whole distribution went to qualified expenses, nothing is added to taxable income, but you still need to be able to show it.¹

Save tuition invoices, receipts for books and equipment, room and board documentation, and the Form 1098-T from the school. If you reimbursed yourself, keep the original receipts for what you paid. Match those records to the 1099-Q and hold onto everything for at least three years after you file the return.

If the Withdrawal Isn’t Qualified

Money pulled out and not spent on qualified education expenses is treated differently in two pieces. Your original contributions come back tax-free and penalty-free regardless of how you use them, because the account was funded with after-tax dollars. The earnings portion becomes taxable income and picks up an additional 10% federal penalty tax.⁵

When a single distribution is part qualified and part not, the IRS prorates. If you take out $10,000 with $2,000 of earnings, and $8,000 goes to qualified expenses, 80% of the earnings ($1,600) is tax-free and $400 is taxable and penalized. The 10% additional tax is reported on Schedule 2 of Form 1040, and in some cases on Form 5329.⁶

Several situations waive the 10% penalty, though income tax on the earnings still applies:

The beneficiary receives a tax-free scholarship or fellowship. You can withdraw up to the scholarship amount without the penalty.
The beneficiary attends a U.S. military academy, up to the cost of that advanced education.
The beneficiary becomes disabled.
The beneficiary dies, and the distribution goes to the estate or to a beneficiary.
Earnings are taxable only because you used the same expenses to claim the American Opportunity or Lifetime Learning Credit.²

If You Have Leftover Money

A non-qualified withdrawal is rarely the only option for money the beneficiary does not end up needing.

Refunded Tuition

If the school refunds tuition or fees you paid from a 529, you have 60 days from the refund date to recontribute the money to a 529 for the same beneficiary. Meet that window and the IRS treats the refund as though it never happened. The recontribution does not have to go back to the same plan, is treated entirely as basis, and does not count against the plan’s contribution limits.⁷

Change the Beneficiary

You can change the beneficiary to another qualifying family member without any tax or penalty. That group includes siblings, step-siblings, parents, children, grandchildren, first cousins, nieces, nephews, and certain in-laws. You can also roll the funds into a 529 for a different family member.³

Roll It to a Roth IRA

Starting in 2024, the SECURE 2.0 Act allows leftover 529 funds to roll directly into a Roth IRA for the beneficiary. The requirements:

The 529 account must have been open for at least 15 years.
Contributions made in the last five years, and earnings on them, cannot be rolled over.
The annual rollover cannot exceed the Roth IRA contribution limit for the year, which is $7,500 for 2026, or $8,600 if the beneficiary is 50 or older, reduced by any other IRA contributions the beneficiary makes that year.
Total lifetime rollovers per beneficiary are capped at $35,000.
The rollover must go directly from 529 trustee to Roth IRA trustee, and the Roth IRA must be in the beneficiary’s name.⁵⁸

At the annual cap, reaching the $35,000 lifetime limit takes at least five years, so the strategy works best when you can see well ahead that funds will go unused.⁹

State Tax Recapture

Many states give a state income tax deduction or credit for 529 contributions, and most of those states will recapture the benefit if you later take a non-qualified withdrawal, adding the previously deducted amount back to your state taxable income for the year of the withdrawal. A few states also add their own penalty on the earnings on top of the federal 10%. The rules vary widely, so check your state’s tax agency before taking any non-qualified distribution.

1
Internal Revenue Service. Instructions for Form 1099-Q
2
Internal Revenue Service. Publication 970, Tax Benefits for Education
3
Internal Revenue Service. 529 Plans: Questions and Answers
4
Internal Revenue Service. Education Credits: Questions and Answers
5
Office of the Law Revision Counsel. 26 USC 529 Qualified Tuition Programs
6
Internal Revenue Service. Instructions for Form 5329, Additional Taxes on Qualified Plans and Other Tax-Favored Accounts
7
Internal Revenue Service. Notice 2018-58, Guidance on Recontributions, Rollovers and Qualified Higher Education Expenses Under Section 529
8
Internal Revenue Service. Retirement Topics – IRA Contribution Limits
9
Internal Revenue Service. Publication 590-A, Contributions to Individual Retirement Arrangements