What Can a 529 Plan Be Used For? Guide for Entrepreneurs

Tuition keeps climbing, and small business cash flow feels tighter every quarter. If you’re juggling payroll, growth, and family goals, every dollar needs a job. A 529 plan can help you put money to work for education without blowing up your budget.

So, what can a 529 plan be used for? In short, qualified education costs across K‑12, college, trade school, and some career training.

That includes tuition, fees, books, required supplies, certain housing costs, and more, all with tax-free growth if used for qualified expenses.

A 529 plan is a tax-advantaged savings account for education, and recent 2025 updates made it more flexible.

Families can now use funds for tutoring, online course materials, standardized test fees, and dual-enrollment programs.

There is also support for apprenticeships and professional certificates through eligible programs, plus a path to repay some student loans within limits.

Here’s the kicker for founders who hate waste. If your child gets a scholarship or chooses a lower-cost path, unused dollars may be rolled into a Roth IRA for the beneficiary, up to lifetime limits and with a 15-year account rule.

That turns today’s education savings into tomorrow’s retirement jumpstart.

Think simple. You could fund your daughter’s community college, her HVAC apprenticeship toolkit, and her certification exam fees.

Or help your son with K‑12 tutoring now, then books and housing later, without creating tax drag.

In this guide, you’ll see exactly what qualifies and what doesn’t. We’ll cover tuition, books and laptops, room and board, K‑12 expenses, apprenticeships, student loan repayments, and Roth IRA rollovers, with clear examples you can put to use.

You’ll also get quick tips to avoid penalties and keep more of your returns.

If you run a business and a household, you don’t need another complex plan. You need a flexible answer to what can a 529 plan be used for, with steps you can act on today. Let’s make your education savings work as hard as you do.

For more insight on 529 plan, explore the Benefits of a 529 Plan for Entrepreneurs in 2025.

What Is a 529 Plan and Why Should Business Owners Care?

A 529 plan is a tax-advantaged account designed to fund education costs. You contribute after-tax dollars, the money grows tax-free, and withdrawals are tax-free when used for qualified expenses.

Why should business owners care? It fits how you manage capital. You control contributions, dial risk through investment options, and align savings with your family’s or team’s goals.

Treat it like a dedicated education bucket in your broader financial plan. It can also support a benefits strategy if you choose to help employees save.

Key Features of 529 Plans

Here are the features that matter most when you run a business and a household:

• Tax‑free growth: Earnings compound without annual taxes, and qualified withdrawals are tax‑free.

• State tax perks: Some states offer tax deductions or credits for contributions if you use an in‑state plan.

• Flexible beneficiary: You can change the beneficiary to another child, a sibling, or even yourself if plans shift.

• Control stays with you: The account owner decides how funds are invested and when distributions happen.

• Anyone can contribute: Parents, grandparents, aunts, uncles, friends, and even your business (via payroll‑linked contributions for employees) can add money.

• High funding capacity: Plans typically allow large lifetime contributions, which helps if you want to front‑load savings.

• Investment choice: Most plans offer age‑based tracks and static portfolios so you can match risk to your timeline.

Example: Maya runs a profitable design studio. Each quarter, she earmarks 3 percent of net profit for her daughter’s 529 plan.

In strong months, she adds an extra lump sum after payroll and taxes. Over five years, consistent contributions plus market growth cover two years of in-state tuition, without creating tax drag or cash-flow surprises.

Using 529 Funds for College and University Expenses

You can use a 529 plan to pay for college in a clean, tax-smart way. Using 529 funds for college and university expenses covers tuition, books, supplies, and housing within clear rules.

Think of it like a budget with lanes. If an expense sits squarely in a qualified lane, your withdrawal stays tax-free.

Covering Tuition, Books, and Living Costs

Your 529 can cover the big three college costs when used for qualified expenses.

• Tax‑free growth: Earnings compound without annual taxes, and qualified withdrawals are tax‑free.

• State tax perks: Some states offer tax deductions or credits for contributions if you use an in‑state plan.

• Flexible beneficiary: You can change the beneficiary to another child, a sibling, or even yourself if plans shift.

• Control stays with you: The account owner decides how funds are invested and when distributions happen.

• Anyone can contribute: Parents, grandparents, aunts, uncles, friends, and even your business (via payroll‑linked contributions for employees) can add money.

• High funding capacity: Plans typically allow large lifetime contributions, which helps if you want to front‑load savings.

• Investment choice: Most plans offer age‑based tracks and static portfolios so you can match risk to your timeline.

A quick example makes this clear. If your daughter rents an off-campus apartment for 1,200 dollars per month but the school’s COA allows 950 dollars per month for housing, you can only withdraw up to 950 dollars per month tax-free for rent. The rest would be nonqualified.

Common pitfalls to avoid:

• Non‑required extras: Optional lab upgrades, club dues, and parking tickets do not qualify.

• Off‑campus cap: Rent and groceries must stay within the school’s COA allowance for room and board.

• Timing and payee: Match withdrawals to the same calendar year the expense was incurred. Pay the school, landlord, or store directly when possible.

Compliance tip: Track and retain receipts, invoices, syllabi, and the school’s COA housing allowance. Save PDFs of bookstore receipts, software licenses, and internet bills.

If the IRS asks, you will need to substantiate that each expense was required and within limits.

Eligible Schools and Programs

A school must be an eligible educational institution for your 529 withdrawals to be qualified. This generally means it is accredited and participates in federal student aid programs.

How to check eligibility:

• Use the Federal School Code list: Check the Federal Student Aid website to confirm the institution is eligible for 529 plan withdrawals.

• Confirm the program level: Degree‑granting colleges, many vocational schools, and some international universities qualify. Always verify the program meets eligibility standards.

• For housing: Ensure the student is enrolled at least half‑time as defined by the school, and use the school’s published Cost of Attendance (COA) to determine the maximum allowable room and board withdrawal.

U.S. and international coverage:

• Most accredited U.S. institutions qualify: Colleges, universities, and two‑year programs that are accredited generally meet the requirements for 529 plan withdrawals.

• Some international schools are eligible: Institutions outside the U.S. can qualify if they participate in the federal student aid system.

• Always verify first: Before making a withdrawal, confirm the school’s eligibility using the Federal School Code list on the Federal Student Aid website. This ensures your distribution remains tax‑free.

Smart move for business-savvy families: Consider community colleges for the first year or two. They often offer lower tuition, flexible schedules, and strong transfer pathways, which stretches your 529 dollars.

You could fund general education credits, required books, and a modest housing budget, then shift to a four-year school with more capital intact.

Quick checks to stay compliant:

• Confirm the school’s eligibility code: Use the Federal School Code list on the Federal Student Aid website to ensure the institution qualifies for 529 plan withdrawals.

• Verify half‑time enrollment: Students must be enrolled at least half‑time, as defined by the school, before 529 funds can be used for room and board.

• Compare off‑campus costs to COA: Rent and meal expenses cannot exceed the school’s published Cost of Attendance (COA) allowance for room and board.

• Keep documentation for special programs: For study abroad or other approved programs, save written confirmation of eligibility and program approval to support qualified withdrawals.

When you use a 529 with these rules in mind, you can cover essential costs with confidence and avoid tax surprises. Check out our article on What is the Average Trust Fund Amount? The Median in 2025 is $285K!

Expanding to K-12 Education

K-12 just got a big upgrade for families asking, what can a 529 plan be used for. Starting mid-2025, qualified expenses go beyond tuition to include more school essentials, with a clear annual cap per student.

This opens options for busy founders who want targeted support without tax friction.

Tuition and New Qualified Expenses

K-12 withdrawals are now broader. You can use a 529 for more than just private school tuition, which gives you room to solve real learning needs.

Here is what now qualifies in 2025, within the federal annual limit:

• Tuition at public, private, or religious K-12 schools

• Curriculum and educational materials: textbooks, workbooks, licensed online content required by the school

• Standardized tests and related fees: SAT, ACT, PSAT, AP exams, and test registration fees

• Dual enrollment: approved college course fees while in high school

• Tutoring: academic tutoring by qualified providers that are not related to the student

• Support for learning disabilities: educational therapies and services like speech or occupational therapy when used to support learning

Why this matters: you can target gaps without waiting for college. It turns your 529 into a practical tool for immediate outcomes.

Understand the limits so you stay compliant:

• The per‑student cap is $10,000 per calendar year for all K‑12 qualified expenses combined in 2025.

• Beginning in 2026, the cap is scheduled to increase to $20,000 per student per year based on current federal changes.

• Some states may not conform to the new rules right away. Check your state plan before you withdraw.

Family coordination prevents surprises. Multiple contributors share the same per-student cap, so parents and grandparents should track payouts together.

Simple steps to avoid mistakes:

• Create a shared spreadsheet to log dates, amounts, category, and payee

• Pull the school’s list of required materials before buying curriculum or online licenses

• Keep receipts, invoices, and proof of enrollment for every withdrawal

Example that works:

• Your high school junior is taking AP Biology. You use the 529 to pay for the AP exam fee, the teacher-recommended AP prep book, and a short AP tutoring package from a vetted provider. All three can qualify within the annual cap, and you keep receipts in your folder for tax records.

Use this K-12 expansion to solve near-term problems. If you are mapping what can a 529 plan be used for, these new rules help you cover learning needs now, then pivot to college or career training later without waste.

Apprenticeships, Certifications, and Student Loans with 529 Plans

529 plans are not just for four-year degrees. You can use them for trade programs, registered apprenticeships, and even a limited amount of student loan repayment.

That flexibility helps founders support practical, career-focused paths without tax drag.

Paying for Trade Programs and Job Training

You can use a 529 to pay for costs tied to a registered apprenticeship program. The key is the U.S. Department of Labor’s registry.

If the program is on the DOL’s Registered Apprenticeship Programs list, your 529 can pay for required fees, books, supplies, and equipment.

Here is what usually qualifies for DOL-registered apprenticeships:

• Tuition or program fees charged by the provider

• Required textbooks, manuals, and safety gear

• Tools and equipment the program mandates

• Exam or assessment fees tied to the program

Examples that work:

• A plumbing apprenticeship sponsored by a local union that appears in the DOL registry. Your 529 can cover the tool kit, code manuals, and required fees.

• A coding bootcamp that is structured as a registered apprenticeship with a DOL sponsor. If it is on the registry, 529 funds can cover required materials.

Not every bootcamp or certificate is eligible. Programs must either be DOL registered for apprenticeships or be part of an eligible educational institution under IRS rules. Always verify status before you withdraw.

Why this matters for entrepreneurs:

• You can fund training for a child, spouse, or yourself if you are the beneficiary. That is a direct pipeline for future talent in your company.

• You can change the beneficiary within family if plans shift. If one child skips college and chooses HVAC, you can redirect 529 dollars to their apprenticeship costs.

• Supporting practical credentials can cut ramp time. Skilled trades and tech roles often require tools, testing, and short‑cycle training that 529 dollars can pay for tax‑free.

Smart steps to stay compliant:

• Confirm DOL registration on Apprenticeship.gov before using funds

• Ask the sponsor for a required materials list, then keep receipts

• Match withdrawals to the same calendar year the expense is incurred

Pro tip for founders: If you want to support employees, consider separate education assistance benefits through your business. A personal 529 must be used for its named beneficiary, not a general employee pool.

Repaying Student Loans Tax-Free

529 plans can help you pay down student debt, within strict limits. Since the SECURE Act, you can withdraw up to 10,000 dollars tax-free for qualified student loan repayment for the beneficiary, plus up to 10,000 dollars for each of the beneficiary’s siblings.

What counts and who qualifies:

• Lifetime limit, not annual: 10,000 dollars for the beneficiary’s loans, plus 10,000 dollars for each sibling’s loans

• Qualified loans: Federal or private student loans in the beneficiary’s or sibling’s name

• Eligible costs: Principal and interest, but any interest paid with 529 dollars cannot be claimed for the student loan interest deduction

Simple example:

• Your college grad sibling has 9,500 dollars left on a private loan. You change your 529 beneficiary to them or use a 529 set up for them, then withdraw 9,500 dollars tax-free to pay the balance. That uses most of their 10,000 dollar lifetime limit.

Key rules to avoid penalties:

• Track lifetime caps per person. Once a beneficiary or sibling hits 10,000 dollars, they are done for 529 loan repayment.

• Keep payment records. Save lender statements and proof of payment dates.

• Coordinate with family. Multiple 529 owners can accidentally overshoot a sibling’s cap if they do not communicate.

Two cautions founders should keep in mind:

• State conformity can vary. A few states may treat student loan repayments differently. Check your state plan’s rules before you withdraw.

• Family loan scenarios can be tricky. If you plan to pay a relative’s loan from your account, confirm beneficiary changes and tax reporting with a qualified tax pro.

Why use 529 dollars for loans at all?

• It cleans up lingering balances with tax‑free earnings

• It frees monthly cash flow for saving or investing

• It creates a clean finish to your education plan, especially if there is a small loan left after graduation

Bottom line, 529 plans add real flexibility for trades and debt. Confirm eligibility, document everything, and use the rules to fund skills or clear loans without extra taxes.

What to Do with Leftover 529 Funds and Common Pitfalls

Education plans change. A scholarship, a faster graduation, or a switch to trade work can leave you with leftover 529 funds. Used correctly, those dollars can fuel retirement or support disability needs without tax friction.

Rollover Options for Maximum Flexibility

You have two standout paths when you do not need all your 529 dollars for school. Each keeps tax advantages intact while serving real-life goals.

Roth IRA rollover: This converts education savings into retirement capital for the beneficiary.

• The 529 must be open 15 years or more.

• Dollars moved must have been in the 529 for at least 5 years.

• You can roll a lifetime maximum of $35,000 per beneficiary.

• The annual rollover is limited to the Roth IRA contribution limit for that year, $7,000 in 2025.

• The beneficiary must have earned income at least equal to the rollover amount that year.

• Regular Roth income limits do not apply to this specific rollover.

Quick example: Your child finishes with $20,000 left. You roll $7,000 per year into their Roth IRA over three years and the remainder the fourth year, building a retirement base with tax-free growth.

ABLE account transfer: For a beneficiary with a qualifying disability, you can move 529 funds into an ABLE account for disability-related needs.

• The ABLE must be for the same beneficiary or a qualifying family member.

• Rollovers are tax-free and penalty-free, but they count toward the ABLE’s annual contribution limit, $19,000 in 2025.

• Funds can cover housing, transportation, therapies, assistive tech, and other qualified disability expenses.

• Track all contributions carefully, since rollovers and cash contributions share the same annual cap.

Why it matters: these options prevent waste and align with how founders think about capital. You repurpose dollars to the next priority, whether that is retirement readiness or essential support.

Avoiding Penalties on Non-Qualified Uses

Non-qualified withdrawals trigger income taxes on earnings plus a 10 percent penalty. Missteps usually come from loose definitions or weak documentation.

Common mistakes to avoid:

• Using funds for non‑education costs, such as vacations, cars, or home repairs

• Paying for optional items not required by the school, like club dues or entertainment devices

• Exceeding housing limits for off‑campus rent compared to the school’s Cost of Attendance

• Mismatching timing, such as withdrawing in a different calendar year than the expense

Simple systems keep you compliant:

• Keep a single folder with receipts, invoices, syllabi, lender statements, and the school’s Cost of Attendance.

• Match distributions to the same calendar year the expense is incurred.

• Pay schools, landlords, or vendors directly when you can, then save confirmations.

• Use your 529 plan’s calculator or estimator to preview the impact before you withdraw.

• Coordinate with relatives who contribute to avoid breaching shared caps, such as K‑12 annual limits.

When in doubt, get advice from a tax professional or planner. State conformity and beneficiary changes can introduce nuances, and a quick review can save you taxes and penalties.

Key takeaway: treat leftover 529 funds like working capital. Move them to a Roth IRA within the rules, or support a beneficiary through an ABLE account.

With clean records and timely withdrawals, you protect gains and keep every dollar doing its job.

Conclusion

The answer to what can a 529 plan be used for is simple and powerful. It covers higher ed essentials, expanded K‑12 costs in 2025, registered apprenticeships and certifications, plus flexible rollovers to a Roth IRA or ABLE account when plans change.

Every dollar gets a job, and you keep tax drag off your balance sheet.

Act now, not later. Open or review your plan, run a quick savings estimate, and sync with a tax pro or advisor to fine-tune contributions for this year’s limits.

Set the foundation so you can focus on growth. When your child’s education is funded with a plan, you can put more energy into customers, cash flow, and your next move. Discover 2 Types Kiddie Tax Calculator: What Parents and Founders Need.