Can we pay for a car with a 529 plan?


Q. Our son is considering community college. I know a 529 plan will cover his educational costs but can it also cover a used car? Mass transit wouldn’t be an option so the car is a necessity
— Parent

A. A 529 plan can be a great way to save for your child’s college expenses.

But what you can use the money for, without penalty, is very specific.

The funds must be used for “qualified education expenses” for the money to be tax-free, said Altair Gobo, a certified financial planner with U.S. Financial Services in Fairfield.

Some of these expenses include tuition (at accredited institutions), room and board (certain limitations may apply), technology items, books and supplies (only those required by the school).

“Items like health insurance, fitness club reimbursement, cell phones, transportation and travel are not `qualified expenses’ and therefore do not qualify for tax-free and penalty-free distribution,” Gobo said.

So to use 529 plan money for a car, you’d have to pay tax and a 10 percent penalty on the distribution, Gobo said.

“This would be very costly,” he said. “Since interest rates are still relatively low, you may want to consider an auto loan or a lease, whichever works best.”

Email your questions to moc.p1566141872leHye1566141872noMJN1566141872@ksA1566141872.

This story was originally published in March 2019. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.