Can You Use a 529 for a Gap Year?

I'm thinking about taking a gap year after high school, and I've heard about using a 529 plan for educational expenses. Can anyone explain if it's possible to use 529 funds during a gap year for things like travel or programs?

A 529 plan is a great way to save for education-related expenses, but it has limitations on how the funds can be used. Generally, the funds can be used for "qualified education expenses" which are primarily related to your postsecondary (college/university) education costs. The IRS defines these expenses as tuition, fees, books, supplies, and equipment required for the enrollment or attendance at an eligible educational institution.

As for a gap year, it really depends upon the nature of the gap year experience or program you're considering. If your gap year consists of participation in a structured, educational program that is eligible for college credit and it is run by an accredited institution, then it's possible that 529 funds could be used for these expenses.

However, if you're thinking about using 529 funds for travel and exploration that isn't associated with an accredited institution or doesn't involve earning college credits, it's very likely that these expenses would not be considered "qualified" as defined by the IRS.

Tapping 529 funds for non-qualified expenses has consequences. If you use the money for non-qualified costs, you'll have to pay income tax on the earnings portion of the withdrawal. Additionally, you'll also be subject to a 10% penalty.

Put simply, you should consider the specifics of your gap year plan, and potentially consult with a financial advisor, to ensure that your use of 529 funds falls within the guidelines set by the IRS. This way, you can avoid any potential tax penalties.