Qualified education expenses are the costs you can pay tax-free from a 529 plan or Coverdell ESA, or count toward the American Opportunity and Lifetime Learning credits. The definition differs by benefit. For 2026, the biggest change is for 529 plans: the K-12 limit doubles to $20,000 per student, and since July 2025 K-12 withdrawals can cover books, tutoring, online learning and standardized test fees, not just tuition, under the One Big Beautiful Bill Act. Here is what counts for each benefit and how to avoid a taxable mistake.
Qualified Education Expenses by Benefit
| Expense | 529 plan (college) | American Opportunity Credit | Lifetime Learning Credit |
|---|---|---|---|
| Tuition and required fees | Yes | Yes | Yes |
| Books, supplies and equipment | Yes | Yes, if required for the course (need not be bought from the school) | Only if required to be paid to the school |
| Computers, software and internet | Yes, if used primarily by the student | Only if required for the course | No |
| Room and board | Yes, if enrolled at least half time (up to the school’s cost of attendance allowance) | No | No |
| Transportation, insurance, medical fees | No | No | No |
529 Plans: K-12 Changes for 2026
- Annual limit: Up to $20,000 per student per year for K-12 expenses starting in 2026, up from $10,000.
- Expanded expenses: In addition to tuition at public, private or religious schools, qualified K-12 expenses now include curriculum and instructional materials, books, online learning tools, tutoring from qualified tutors, standardized test fees (such as SAT, ACT and AP), dual-enrollment college courses and certain educational therapies for students with disabilities.
- Homeschool: Many homeschool materials now qualify under the expanded list.
Some states do not follow the federal changes for state income tax purposes, so a withdrawal that is tax-free federally could be taxable or trigger recapture of a state deduction. Check your plan’s rules.
529 Plans: Other Qualified Uses
- Postsecondary credential programs: Tuition, fees, books and testing for recognized credentials, including programs under the Workforce Innovation and Opportunity Act, state-licensed professional programs and military credentials.
- Registered apprenticeships: Fees, books, supplies and equipment.
- Student loans: Up to $10,000 lifetime per beneficiary (and $10,000 per sibling).
- Roth IRA rollover: Up to $35,000 lifetime for accounts open at least 15 years, subject to annual IRA limits.
See our guide to setting up a 529 plan.
Education Credits
- American Opportunity Tax Credit: Up to $2,500 per student for the first four years of college, 40% refundable. See the American Opportunity Tax Credit for 2026.
- Lifetime Learning Credit: Up to $2,000 per return for undergraduate, graduate or job-skills courses. See the 2026 Lifetime Learning Credit.
Your school reports tuition paid on Form 1098-T, but you should keep receipts for books and other expenses.
The No Double-Dipping Rule
You cannot use the same dollars for a tax-free 529 withdrawal and an education credit. Families often pay $4,000 of tuition with cash or loans to claim the full American Opportunity Credit, then use the 529 for room, board and other costs.
Example: A freshman’s costs are $14,000 of tuition and $12,000 of room and board. The parents pay $4,000 of tuition from their checking account and claim a $2,500 American Opportunity Credit. They withdraw $22,000 from the 529 for the remaining tuition and room and board, all of which is qualified. If they had used the 529 for all $26,000, they would lose the credit.
What Happens With Non-Qualified Withdrawals?
The earnings portion of a 529 withdrawal that is not used for qualified education expenses is taxed as ordinary income and generally subject to a 10% penalty. The penalty is waived if the beneficiary receives a tax-free scholarship (up to the scholarship amount), attends a U.S. military academy, becomes disabled or dies. You can also change the beneficiary to another family member without tax.
Coverdell Education Savings Accounts
Coverdell ESAs allow $2,000 a year of contributions per beneficiary, subject to income limits, and cover both college and K-12 expenses, including uniforms, tutoring and computers. See how ESAs are taxed.
Record-Keeping Tips
- Match each 529 withdrawal to expenses paid in the same calendar year.
- Keep receipts for books, computers and room and board.
- For off-campus housing, use the school’s published cost-of-attendance allowance as the limit.
- Keep Form 1098-T and any scholarship records.
Frequently Asked Questions
What are qualified education expenses for a 529 plan?
College tuition, fees, books, supplies, equipment, computers and, for students enrolled at least half time, room and board, plus up to $20,000 a year of K-12 expenses starting in 2026.
Can I use a 529 for K-12 tutoring?
Yes. Under the 2025 law, tutoring by a qualified tutor and other K-12 expenses beyond tuition can qualify, within the annual K-12 limit.
Is room and board a qualified education expense?
For 529 plans, yes, if the student is enrolled at least half time. It does not count for the education credits.
Can I use a 529 and claim the American Opportunity Credit in the same year?
Yes, but not for the same expenses.
Final Thoughts
Qualified education expenses depend on which benefit you are using, and the 2026 K-12 expansion makes 529 plans more flexible than ever. Coordinate 529 withdrawals with education credits, keep receipts, and check your state’s rules before taking money out.
Have questions about how this applies to your situation? Book a free consultation with Aric and get answers from a CPA.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
