529 Withdrawals: Everything You Need to Know
August is typically the month when students begin returning to college, or attending for the first time. For many, that means bills to pay. Fortunately, if you have a 529 education savings account, those bills won’t be so hard to stomach: you’ll have funds to draw on from years of investing for this very reason. Here are guidelines for making a withdrawal from your 529 account with The Education Plan®.
Qualified Expenses
With a 529 education savings account, you may make withdrawals from the beneficiary’s account for higher education expenses at any time and in whatever amount you decide; however, withdrawals must be for “qualified education expenses”. These include items such as tuition and fees, room and board, textbooks and lab fees, special needs equipment, some study abroad programs, and technology required for course work. Withdrawals for non-qualified expenses– including transportation, cell phones, and fees for sports or clubs – are subject to tax, plus a 10% penalty, so make sure you are using the funds correctly.
Rules for Withdrawals
Before you start withdrawing funds, add up all your expenses and rule out those that are not qualified education expenses. Subtract any tax-free money your child has received, such as scholarships, Pell Grants, employer or veteran’s educational assistance, as well as any federal tax credits such as credits from the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Tax Credit (LLTC). You want to avoid “double-dipping” your tax breaks.
After this step, it’s time to make the withdrawal. To do so, submit a withdrawal request by logging into your account online or filling out this form. Be aware of deadlines for the most pressing items such as tuition, as there may be temporary withdrawal restrictions. Check with your child’s institution to see if you can make automatic payments from the 529 account directly to the school. The Education Plan – New Mexico’s 529 College Savings Plan option – can send a check to the institution, to the account beneficiary, or to the account owner. It’s your decision.
Documentation
The timing of your withdrawals is also important. Make sure that you withdraw and spend the money withdrawn in the same calendar year, not academic year; otherwise, you will have mismatched reporting with the IRS, and your withdrawals, even for qualified education expenses, may be subject to tax and penalties.
It’s also important to document your spending for at least three years, in case the IRS asks for proof of your qualified withdrawals. This means keeping detailed records that include account statements with tuition and room and board; receipts for computer equipment, accessories, software, and internet; syllabi documenting course requirements (e.g., lab fees); canceled checks and records showing withdrawals for all other qualified education expenses.
Some of this may seem burdensome or confusing, particularly given the amount of documentation required. But it can be as simple as four steps:
- Total up your expenses
- Subtract any tax-free money
- Make the appropriate withdrawals for qualified education expenses
- Keep records of your spending
If you are concerned about withdrawals from your 529 account, we’re here to help. You can reach out to our team with any questions about how to make a withdrawal here.
Frequently Asked Questions
A 529 plan is a tax-advantaged investment account that is designed to grow savings for future education expenses for a specified beneficiary. 529 plans offer unique benefits and features that make them an appealing strategy for education related saving.
A 529 plan can be used for “qualified educational expenses.” For federal tax purposes, qualified educational expenses include:
- Tuition and fees at accredited higher education institutions
- Books
- Supplies and equipment
- Room and board for beneficiaries attending on at least a half-time basis.
- Computer technology, equipment, and internet access
- Up to $10,000 a year for K-12 tuition and expenses (Limit increase to $20,000 in 2026)
- Expenses for educational special needs services
- Transfers to an ABLE account for the beneficiary (transfer subject to annual limit)
- Apprenticeship expenses
- Up to $10,000 for student loan repayment
- Credentialing expenses and certification programs
- Roth IRA rollover for the beneficiary
If you're not sure if an expense is considered "qualified," we recommend consulting with a tax professional or advisor. Unqualified expenses will be treated like ordinary income: state and federal taxes will apply, with a 10% federal penalty for withdrawals from your 529 plan used to pay for them.
New Mexico residents can deduct contributions to The Education Plan from their state taxable income each year. This includes contributions made to an account that you are not the account owner of.
You cannot deduct contributions from federal income taxes.
Any person at least 18 years old with a valid Social Security Number (SSN) or Tax Identification Number (TIN) can open a 529 account. The account holder chooses the investment options, designates a beneficiary, and requests the distribution of funds.
The cost of college continues to rise, including tuition, housing, food and supplies, so it’s important to begin saving as soon as possible. You can learn more about how much a typical college education costs on our Cost of College page. It’s never too early or too late to start.
The Education Plan offers a variety of investment options to fit you and your family’s needs, risk tolerance and goals. You can see all of the available investment portfolios on the investments page.
Yes, you can use up to $20,000* a year to cover tuition and expenses for K-12 education.
Qualified K-12 expenses include:
- Tuition (public, private, and religious)
- Curriculum materials, books (including digital/online) and instructional materials
- Tutoring and instructional classes**
- Fees for a nationally standardized norm-referenced achievement test, an advanced placement examination, or any examinations related to college or university admission
- Dual enrollment program fees
Educational therapies for students with disabilities provided by a licensed or accredited practitioner or provider, including occupational, behavioral, physical, and speech-language therapies
*Starting in tax year 2026. The annual limit is $10,000 in tax year 2025 and permitted for tuition only.
**Tuition for tutoring or educational classes outside of the home, including at a tutoring facility, but only if the tutor or instructor is not related to the student and—
(i) is licensed as a teacher in any State,
(ii) has taught at an eligible educational institution,
or (iii) is a subject matter expert in the relevant subject.
You can open an account with The Education Plan online or by mailing in the enrollment form. In order to open an account, you will need the following information:
- Your social security number or TIN
- Your address
- Your bank account information (in order to fund the account)
- The beneficiary’s social security number or TIN
- The beneficiary’s birthday
-The beneficiary’s address
