Review this list to find out what type of expenses you can pay from an education savings account, as well as your options if your child doesn’t attend college.

Definition of qualified elementary and secondary education expenses

You can make tax-free withdrawals from an education savings account to pay for a child’s kindergarten through 12th grade qualified expenses at a public, private, or religious school. These qualified elementary and secondary education expenses include:

• Tuition and fees
• Books, supplies, and equipment
• Services for special needs children
• Academic tutoring
• Room and board 
• Uniforms, transportation, and supplementary items 
• Services required by the school, such as extended day programs
• Computer technology, computer equipment, or Internet access or related services used by the beneficiary while the beneficiary is in school. Computer technology and equipment is defined as computer software and computer or peripheral equipment. This specifically excludes software designed for sports, games, or hobbies, unless the software is predominantly educational in nature

Definition of qualified higher education expenses

You can make tax-free withdrawals from an education savings account to pay for a student’s undergraduate and graduate qualified expenses at eligible colleges and universities. These qualified higher education expenses include:

• Undergraduate and graduate tuition and fees 
• Books, supplies, and equipment 
• Services for special needs students
• Specified room and board expenses for students who attend college at least half time

If your child doesn’t use the money for college

If your child doesn’t attend college, you’re allowed to roll over an education savings account to an education savings account for specified members of your child’s family who are under age 30, or to a special needs beneficiary.

You can make this rollover free from taxes or penalties. The IRS defines family members broadly, including among others, first cousins, a child’s siblings and stepsiblings, and a child’s spouse and children.

Any money remaining in an education savings account at the time your child turns 30 must be distributed, with an exception for special needs beneficiaries. Because the money wasn’t used for educational purposes, the earnings will be included in your child’s gross income and subject to income taxes, as well as a 10% tax penalty. (Taxes and penalties apply only to earnings since you made contributions with after tax dollars.)

Likewise, if a student makes withdrawals at any time for any purpose other than education, the student has to pay income taxes on the account’s earnings, and unless an exception applies, a 10% additional tax.

The exceptions to the 10% penalty in brief: 

• Withdrawals due to the disability or death of the beneficiary 
• Withdrawals made because the beneficiary received a qualified scholarship or allowance
• Withdrawals made because the student waived the tax-free treatment of the withdrawal
  

Article is for educational purposes only and is not intended to provide specific tax or legal advice. For answers to tax questions, please see your tax professional. For legal questions, consult an attorney.

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