Key takeaways

• Qualified 529 withdrawals generally cover school tuition, books, meals, and other educational costs.

• People making a non-qualified withdrawal will need to pay both income taxes and an additional penalty.

• Options like changing beneficiaries or Roth IRA rollovers can help avoid penalties.

One of the most important parts of having a 529 college savings account is understanding how to make withdrawals and avoid any 529 penalty.

529 plans can provide a range of investment options, including age-based mixes designed to adjust asset allocation as the chosen year approaches (usually when the beneficiary will enter college). When the time comes to tap these funds, make sure you’re aware of what qualifies for eligible withdrawals — and what you may need to pay additional taxes and penalties on.

529 plan withdrawal rules for educational expenses

529 accounts are designed to help families keep the costs of higher education in reach, providing tax benefits for items and services that are essential to the learning experience. To maximize the value of a 529 account, become familiar with the cost criteria and the ways in which you can pay or get reimbursed for the expenses:

• Qualified withdrawals: Tax-free money, used for educational expenses

• Non-qualified withdrawals: Subject to income taxes and additional penalty, used for any reason

What counts as a qualified 529 withdrawal for federal tax purposes?

Even if a family qualifies for financial aid, grants, or scholarships, 529 funds can still play an essential role in paying for college because — in addition to tuition — 529 qualified expenses cover a range of costs, including:

• Course textbooks and supplies

• Costs related to special-needs services or accommodations at an eligible school

• Computers (like laptops) for educational use

• Testing fees

• Campus meal plans and food expenses

People can also choose to use the funds on eligible expenses even before college, as IRS 529 withdrawal rules now allow a higher limit for qualifying K-12 costs of $20,000 per year.

Carefully consult IRS guidelines and your 529’s plan documents for a full breakdown and to double-check what expenses are covered; not everything a consumer may think is “education-related” may qualify.¹ In addition, state income tax rules regarding 529 withdrawals and qualified expenses may differ from the federal rules.

Read more: What can 529 funds be used for? Get a Sense Check

How to withdraw from a 529 without penalty

Once you determine what your 529 funds can apply to, take note of these steps to complete withdrawals and stay compliant with both plan rules and federal and state tax laws.

1. Add up all the qualifying costs and time the withdrawal following the “calendar year” rule: Determine how much money is needed to pay (or was already paid) for the relevant categories (tuition, technology, etc.) for the same calendar year. It’s important to know that 529 expenses and withdrawals have to align to the same calendar year. For example, to pay the amount you were charged for university tuition in 2026, you need to make the withdrawal in 2026.²
2. Determine who the withdrawal is payable to: 529 account funds can be used as payment directly to an educational institution, or be treated like a reimbursement, in which the money can be paid out to the account owner or the account beneficiary (such as in the case for tuition bills that have already been paid).
3. Complete the withdrawal process with the servicer: Forms may be completed online, over the phone, or through the mail, depending on what your 529 account servicer offers.  You’ll need to know the exact dollar amount and the name and contact details for the payee (including a Social Security number if an individual).

Another important consideration for a penalty-free 529 withdrawal is to ensure all documentation is kept up to date for when your annual tax returns are due. Receipts for the eligible expenses are needed to support that the withdrawals are for covered costs made during the relevant time period.

529 withdrawals not for education

Money in a 529 account can always be accessed, though when the distribution is for reasons outside of educational expenses, that’s considered a 529 non-qualified withdrawal.

In this situation, you face a federal tax 529 withdrawal penalty of paying both income tax and an additional 10% tax on the earnings (not contributions). You may also be subject to state tax as well. You would lose out on the 529 account’s benefit of funds growing tax-free, though there’s still some financial flexibility to use the money for other purposes should the need arise.

The IRS allows some penalty-free scenarios in the 529 rules for withdrawal — under which you can make a non-qualified distribution and avoid the 10% penalty, but you’d still need to pay income tax on the earnings. These include if the beneficiary attends a U.S. military academy, if they received a scholarship, and upon the beneficiary’s death.³

How 529 withdrawals are taxed

If you use 529 money to pay for qualified educational costs, earnings accumulated in the account are not subject to federal tax, and this typically applies to state taxes as well.⁴

However, not all states follow the federal guidelines around contributions serving as tax deductions, whether some withdrawals count toward state income tax, and if 529 rollovers into out-of-state plans require additional taxation.5 It’s best to consult with the specific plan you’re actively enrolled in or interested in starting with.

Alternatives to taking a non-qualifying withdrawal

These savings accounts have become more flexible over time, especially after changes enacted under 2025’s large tax reform package, so there are some ways to avoid penalty for 529 withdrawal. People who may be unsure whether they’ll use all their 529 savings have options in addition to taking a non-qualifying withdrawal.

Change the beneficiary of the 529 plan

A 529 savings plan can also serve as a generational strategy, thanks to the ability to modify who the account funds go to.

If the original beneficiary changes their college plans or won’t use the full balance available in the account, an alternative to pulling money from the account would be to update the 529 beneficiary to another member of the same family.

This allows the account funds to keep their tax-free growth and not lose out on the power of compounding, and a change in beneficiary does not trigger any taxable event or penalty. This does depend on whether there are others in the family (or even yourself) who could make use of the 529 funds.

Roll over 529 funds into a Roth IRA

Another money move could redirect 529 funds into retirement savings: You may be able to roll over up to $35,000 of 529 plan money into a Roth IRA for the beneficiary, now possible under the SECURE Act 2.0. Several eligibility rules apply for the rollover; a few include:

• The account must have been active for at least 15 years

• The funds being transferred (which can include both contributions and earnings) must have been held in the 529 account for at least 5 years

• The Roth IRA must be owned by the same person who is the beneficiary of the 529 account

Read more: 529 to Roth IRA rollover: A new way to save for retirement

With Americans holding an average of $532,291 in retirement savings, based on Empower Personal Dashboard^TM data, repurposing education savings into a Roth IRA could help meet goals for decades down the line. The money would then take on the benefits of a Roth IRA, including tax-free qualified withdrawals and no required minimum distributions.

Frequently asked questions on 529 withdrawals

How long does money need to stay in a 529 before withdrawal?

There’s no minimum time requirement to keep money in a 529 plan before making a withdrawal. Funds can be withdrawn at any time, but earnings may be subject to taxes and a 10% penalty if used for non-qualified expenses. Qualified education expenses generally allow for tax-free withdrawals.

How do I withdraw money from my 529 without penalty?

To avoid taxes and penalties, withdrawals must be used for qualified education expenses, such as tuition, fees, books, and certain room and board costs. The determination of what is a qualified education expense may differ for federal and state tax purposes. The withdrawal should match the expense in the same tax year and be properly documented. Non-qualified withdrawals may trigger income taxes and a 10% penalty on earnings.

Can I pull money out of my child’s 529?

Yes, the account owner — not the beneficiary — controls the 529 plan and can withdraw funds at any time. However, withdrawals used for non-qualified expenses may result in taxes and a 10% penalty on earnings. Funds used for qualified education expenses are generally tax-free.