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February 4, 2015 by Mike Bergin

Can 529 Funds Be Used to Pay for Test Prep?

529-plans529 plans, tax advantaged investment vehicles designed to make it easier to save and pay for college or alternate post-secondary training, have been in the news lately. These plans, otherwise known as qualified tuition programs, have become somewhat popular with families all too aware of the steadily rising cost of a college education.

Over the years, a number of clients have come to us requesting documentation so they could use 529 college savings plan funds to pay for their SAT & ACT prep. The practice become so common that we started telling new clients about the 529 option as a matter of course. Good thing we’re in education, not tax services!

The last time a client commented to me on how excited she was about the option of using 529 college funds to pay for prep, I decided to consult an actual accountant to confirm what I thought was true. False! Distributions from 529 plans are to be used only for higher education costs incurred while a student is enrolled at least half time in a qualified tuition program at an eligible educational institution. SAT & ACT prep for high school students clearly precedes college enrollment, at least when done right, so test prep doesn’t qualify.

There is some ambiguity in the tax code defining a qualified education expense as one related to enrollment or attendance at an eligible educational institution. One might think that test prep qualifies as a necessary expense related to enrollment at any school that requires SAT or ACT scores. However, qualified education expenses are more clearly defined as either tuition and fees or books, supplies, and equipment.

Apparently some savings instruments can be used to pay for test prep, but 529s are not. Of course, your accountant may disagree, so be sure to check!

Does anyone have other information to add to this question?

ACT cost of college SAT

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Mike Bergin
Tens of thousands of students a year prep for the SAT & ACT through programs Mike Bergin created or organized. After more than 25 years of intensive experience in the education industry, he's done it all as a teacher, tutor, director, curriculum developer, blogger, podcaster, and best-selling author. Mike founded Chariot Learning in 2009 to deliver on the promise of what truly transformative individualized education can and should be.

Helping high schoolers with tests, school, and life is what Chariot Learning is all about. Let us know how we can help you!

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