Getting Ready to Use Your 529 Funds This Fall

By: South Carolina State Treasurer Curtis Loftis, Administrator of Future Scholar College Savings Plan

For years, I have encouraged families in my state to save for their child’s education with South Carolina’s Future Scholar 529 Plan. As a strong advocate for 529 plans, I applaud families everywhere who make consistent 529 contributions. They have shown their commitment to helping cover their child’s necessary expenses when taking the next step in their education journey.

Families who choose to save in a 529 account to cover college expenses can celebrate reaching their important goal when they begin withdrawing 529 funds – tax-free – to pay for qualified education expenses. Understanding how 529 distributions work will make the process simple.

How to Use 529 Funds: Step-by-Step

First, know what your 529 funds will cover.

For higher education, your funds will cover tuition, fees, books, supplies, computers, equipment, meals and housing (if your student is at least a part-time student) for eligible educational institutions – including two- and four- year public and private colleges throughout the U.S., international schools, graduate and professional programs, trade schools and registered apprenticeships. 

Your child may also use 529 funds for off-campus housing and meals. However, any costs associated with living off-campus should not exceed the room and board allowance your school has identified as “the cost of attendance.” You can usually find information on the cost of attendance on the college’s website. 

When using 529 funds to purchase books, be sure the books are required reading for the course your child is enrolled in. The same goes for computer programs. Computers and computer software must be for educational purposes and not related to games or hobbies.

That’s not all. With the recent passage of the One Big Beautiful Bill Act of 2025, funds in 529 accounts can now be used for more qualified expenses than ever before. This legislation expands the definition of qualified educational expenses to include additional costs associated with K-12 education, tutoring, standardized testing fees, and much more. In addition, the costs associated with obtaining and maintaining certain professional credentials, certifications, and licenses are now also considered qualified expenses under the new law.  

Next, add it up.

Add up all your qualified education expenses, then subtract from the total any tax-free educational assistance you will receive, such as tax-free scholarships, educational assistance from a qualifying employer program, or veteran’s education assistance. This step helps you determine the amount you will need to withdraw from your 529 account.

Your plan administrator will provide you with Form 1099-Q listing your 529 withdrawals for the year. Remember, your withdrawals for qualified education expenses will not be taxed. If you use funds for non-qualified purposes, your earnings, but not your contributions, will be taxed at ordinary income rates plus a 10% federal tax penalty, in most cases.

Then, withdraw your funds.

When it’s time to request a distribution from your 529 account, most plans will allow you to make your withdrawal request electronically on their customer portal, by mail, or by telephone. Usually, the most efficient way to receive your funds is to have them deposited directly into your bank account. From there, you can easily submit the payment to your child’s school electronically or reimburse yourself if you have already paid for the qualified education expenses. 

If you choose to have funds deposited into your bank account, be sure to update your bank account information with your 529 plan at least 30 days before you plan to withdraw funds. Also, check that your account’s email and mailing address are current so you receive all important updates. 

When you withdraw 529 funds is important.

Withdrawing money from your 529 account at the right time is crucial. Withdraw your funds in the same calendar year – not school year – as you incurred the expenses so that the year’s withdrawals match up with the year’s education expenses for tax purposes. 

For example, if you pay for spring semester classes in December of 2025, you should request your distribution for reimbursement by the end of 2025. Do not wait until your child begins spring semester classes in 2026. You can always withdraw the funds earlier in 2025 in anticipation of paying tuition in December.  

Save your receipts of expenditures and list all distributions for your records. At the end of each calendar year, you can go through your receipts to make sure you have withdrawn funds for all qualified education expenses. Be sure to allow time for your 529 plan administrator to process your withdrawal request to make sure all processing is completed in the same calendar year.

Congratulations on a job well done.

You chose to provide your loved one with the important gift of education. You saved to help your child achieve the goal of a successful future, and it’s now time to reap the reward of your dedication to that goal. Best of luck to your family and your very lucky beneficiary!