The 529 college savings plan is a smart, tax-advantaged tool designed to ease the burden of educational expenses. It allows families to save over time and withdraw funds tax-free—as long as those funds are used for what the IRS considers “qualified education expenses.” But here’s where many well-meaning savers get tripped up: not everything that feels like an educational cost is actually eligible.
You might be surprised to learn that several common student-related expenses don’t qualify under 529 rules. And using your 529 savings for them could result in taxes and a 10% penalty on the earnings. Let’s take a closer look at the most misleading non-qualified expenses—so you can avoid accidental misuse.
1. Transportation and Travel: The Hidden Costs of Going to School
Sending a child off to college often means dealing with planes, trains, and automobiles. Whether it’s flying them home for winter break, driving across the country for move-in day, or even paying for international visas for a semester abroad—these are all very real, very costly parts of the education journey. But unfortunately, they’re not considered qualified 529 expenses.
Even if the destination is an accredited university overseas, travel costs don’t make the cut. Plane tickets, gas money, rideshare costs, and even train passes don’t qualify. The rationale? These expenses aren’t directly tied to instruction, housing, or required school supplies. So if you were hoping to use 529 funds for that $600 round-trip flight home for Thanksgiving—think again.
Bottom line: Transportation and travel, no matter how essential they may feel, must be covered out of pocket.
2. Electronics and Cell Phone Plans: Necessary, But Not Qualified
In today’s world, a smartphone is arguably as important as a textbook. Still, the IRS doesn’t see it that way. Cell phones, monthly mobile plans, and even general electronics like TVs or smartwatches are considered personal, not educational, expenses.
That said, there’s a small caveat: certain technology—like a laptop, printer, or educational software—can be paid for with 529 funds, as long as it’s required for attendance. But phones? Even though students rely on them for everything from staying in touch with professors to accessing online classes, they fall outside the definition of “necessary educational equipment.”
Lesson here: If it’s not required by the school and directly related to coursework, it probably won’t pass the qualified expense test.
3. Fitness Club and Gym Memberships: Healthy, But Not Covered
Many colleges charge a fee for access to campus gyms, intramural sports programs, or wellness facilities. While these are billed through the university and may be encouraged for student well-being, they are not considered education-related expenses by 529 standards.
Even if the gym membership is part of a student’s routine or used to manage stress during a demanding academic year, the IRS doesn’t see fitness as an educational requirement. So you’ll need to use other funds to pay for it.
This rule applies whether the fitness membership is on-campus or off-campus. Whether it’s yoga at the student rec center or CrossFit at a local gym, it’s not an expense your 529 will cover.
4. Health Insurance: Vital, Yet Ineligible
Health coverage is a top priority for families, especially for students living away from home for the first time. Many colleges offer student health insurance plans as an option, and in some cases, students are even required to carry coverage in order to enroll.
But here’s the catch: even though insurance premiums might show up on your tuition bill, the cost of health insurance does not qualify as a 529-eligible expense. That includes dental, vision, and general health coverage. Nor can you use your 529 to pay for visits to off-campus doctors, prescriptions, or emergency room visits.
The only healthcare-related expenses that might qualify are those tied directly to a student’s special needs services required for attendance—but general medical costs are excluded.
What this means: Health is essential, but when it comes to your 529 plan, you’ll need to look elsewhere for coverage.
Why It Matters
Understanding these exclusions is more than just a matter of staying compliant with tax law—it’s about protecting your savings. If you use 529 funds for a non-qualified expense, the IRS will tax the earnings portion of your withdrawal as regular income and hit you with a 10% penalty.
That can add up quickly, especially if you’re relying on those funds for key aspects of student life that you thought were covered.
Navigating the Gray Areas
Some expenses fall into a gray area and may require clarification from the school’s financial aid office. When in doubt, ask whether the cost is considered part of the official “cost of attendance” as defined by the school. If it’s not explicitly listed or required, it’s safest to assume the 529 won’t cover it.
Final Thoughts: Plan Wisely
The 529 plan is a powerful tool, but it comes with rules that can be easy to overlook. While tuition, books, and room and board get the green light, many everyday expenses don’t. Travel, cell phones, gym memberships, and insurance may feel like essentials—but they’re off-limits if you’re looking to preserve the tax-free benefits of your savings.
To get the most out of your 529 plan, stay informed, keep detailed records, and plan your withdrawals carefully. When used correctly, a 529 can make a meaningful difference in your child’s educational journey—just make sure you know where the limits lie.
