Note: This article includeds a correction. The break cannot be used for students not yet enrolled at an institution of higher learning.
Is your college student nagging you for a new computer? If you’d like to oblige but think you can’t afford to, you may be surprised to learn that you may have a ready stash of savings you can use to buy that gift -- if you have a 529 college-savings plan.
Normally, you must spend your 529 funds on college tuition and other qualified expenses. The earnings portion of distributions not used for qualified college expenses is taxed and slapped with a 10% penalty.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
But a new, temporary tax break allows you to use money in your 529 college-savings plan tax-free and penalty-free to purchase a computer for students enrolled in college or another post-high school institution. The tax break is available for 2009 and 2010 and also applies to computer software and Internet service. To qualify for the tax break, the software must be primarily educational. Sports or gaming software doesn’t qualify.
So you just might be able to grant that wish for a new laptop, netbook or desktop computer without breaking the bank . . . and with no tax consequences.
-
Capital Gains Tax Quiz: How Well Do You Really Know IRS Investment Tax Rules?Quiz Take our capital gains tax quiz to test your investment taxes knowledge. Learn about loss rules, holding periods, and tax incentives that could impact your savings.
-
6 Tax Reasons to Convert Your IRA to a Roth (and When You Shouldn't)Retirement Taxes Here’s how converting your traditional retirement account to a Roth IRA can boost your nest egg — but avoid these costly scenarios.
-
Could Tax Savings Make a 50-Year Mortgage Worth It?Buying a Home The 50-year mortgage proposal by Trump aims to address the housing affordability crisis with lower monthly mortgage payments. But what does that mean for your taxes?
-
3 Ways High-Income Earners Can Maximize Their Charitable Donations in 2025Tax Deductions New charitable giving tax rules will soon lower your deduction for donations to charity — here’s what you should do now.
-
An HSA Sounds Great for Taxes: Here’s Why It Might Not Be Right for YouHealth Savings Even with the promise of ‘triple tax benefits,’ a health savings account might not be the best health plan option for everyone.
-
New RMD Rules: Can You Pass This Retirement Distributions Tax Quiz?Quiz Take our RMD quiz to test your retirement tax knowledge. Learn about RMD rules, IRS deadlines, and tax penalties that could shrink your savings.
-
10 Retirement Tax Plan Moves to Make Before December 31Retirement Taxes Proactively reviewing your health coverage, RMDs and IRAs can lower retirement taxes in 2025 and 2026. Here’s how.
-
When to Hire a Tax Pro: The Age Most Americans Switch to a CPATax Tips Taxpayers may outsource their financial stress by a specific age. Find out when you should hire a tax preparer.
