Qualified Tuition Programs (Section 529 Accounts)

Distributions for qualified tuition programs (Section 529 accounts) are tax-free if they are used to pay a beneficiary’s qualified educational expenses. Other distributions are included in the beneficiary’s income and are subject to a penalty. In general, qualified educational expenses are tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution, certain expenses of special-needs beneficiaries, and room and board expenses for students enrolled at least half time. However, for 2009 and 2010, the new law expands the definition of qualified educational expenses to include the purchase of computer technology or equipment, as well as Internet access and related services, if they are to be used by the beneficiary and the beneficiary’s family during any of the years the beneficiary is enrolled at an eligible educational institution. These expenses may include expenses for computer software, computer or peripheral equipment, and fiber optic cable related to computer use. However, the expansion does not apply to expenses for software designed for sports, games, or hobbies unless it is primarily educational in nature.