How 529 Withdrawals Work

Before you withdraw anything, you must verify that the expense meets IRS rules for qualified education expenses. These include:

Tuition & mandatory fees

• At any accredited college, university, trade school, or graduate program.

Room & board

• Student must be enrolled at least half-time.
• Books, supplies: You can withdraw up to the school’s published Cost of Attendance (COA) for housing and food.
• Equipment: Must be required for enrollment or coursework.

Technology

• Computers, software, and internet access are used primarily for school.

Special categories

• Up to $10,000 per year for K–12 tuition
• Up to $10,000 lifetime for student loan repayment
• Certain apprenticeship program costs

If the expense isn’t qualified, the earnings portion of the withdrawal becomes taxable + a 10% penalty.

Who Will Receive the Money

You have three options, and the IRS treats them the same as long as the expense is qualified.

Option A: Pay the school directly

• You initiate a withdrawal and send funds straight to the college’s billing office.
• Clean and simple, but timing matters.

Option B: Reimburse yourself

• You pay the school or vendor first.
• Then you withdraw from the 529 and send the money to your own bank account.
• This is the most flexible method.

Option C: Pay the student

• Useful if the student is managing their own expenses (books, rent, etc.).
• Still must match qualified expenses.

There is no tax difference between these three — the IRS only cares that the withdrawal matches a qualified expense in the same calendar year.

If you need guidance that is tailored specifically to your unique situation, we encourage you to connect directly with Pro Advisor Support. Their experienced team specializes in assisting clergy and church organizations with complex tax, payroll, bookkeeping, and HR matters. Whether you have detailed questions about compliance, deductions, or planning strategies, they can provide expert advice and walk you through the next steps with clarity and confidence.

Clergy Financial Resources
Tax I Payroll I Bookkeeping I HR | Consulting
11214 86th Avenue N.
Maple Grove, MN 55369

Tel: (888) 421.0101

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Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.

This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.

For more information or if you need additional assistance, please use the contact information below.

Clergy Financial Resources
11214 86th Avenue N.
Maple Grove, MN 55369

Tel: (888) 421-0101
Fax: (888) 876-5101
Email: clientservices@clergyfinancial.com