If you’re a parent or benefactor trying to save money so your children can attend college, then you’ve probably heard of a 529 college savings plan. There are different kinds of college savings plans, but all states except Wyoming offer these types of investment accounts. Generally speaking, 529 plans are accounts with low required minimum contributions. These funds can be invested and ultimately withdrawn tax-free. The catch is that distributions must be used for college-related expenses. Here are six ways you can use 529 plans for college expenses and one way that’s not related at all.

529 distributions cover a lot

The average cost of college tuition has soared for years, forcing students to take out big loans to pay for college or simply skip higher education altogether because they can’t afford it. The average cost for one year of out-of-state and private non-profit college tuition was $29,150 and $41,540, respectively, according to CollegeBoard. Even students who can take advantage of in-state public tuition will pay an average of $11,260.

Given the astronomical cost of college, 529 plans have become more important than ever before. Parents try to start saving as early as possible and take advantage of the effects of long-term, tax-free compounding. As with any investment vehicle that offers tax-free investing, 529 plans have many rules that are important to review, such as associated fees, benefits that vary by state, and penalties for withdrawing at the wrong time or using funds for the wrong reasons.

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The first big thing to understand is what 529 distributions can be used for. While tuition is the main one, college has many other associated costs that can rack up a bill. Here are six ways you can use 529 plans for college-related expenses:

1. Tuition and fees.

2. Room and board (student must be enrolled half-time).

3. Books and supplies.

4. Computers and associated equipment.

5. Paying back student loans (up to $10,000 lifetime).

6. Special services (for students with disabilities or other special needs).

The one unrelated use

Do you have leftover funds in your 529 account? Or are you worried your child might not attend college? Or that college may not be as important as it is now in the future? No problem — there is now a completely unrelated way that you can use your 529 funds. Thanks to a law passed at the end of 2022, starting this year, some people can make tax and penalty-free rollovers to a Roth individual retirement account.

A Roth IRA is a retirement account in which people contribute after-tax dollars, but the earnings can grow and be taken out tax-free. There are income limitations on who can have this account, but for 529 rollovers, those income limits do not apply. Still, there is a maximum lifetime rollover amount of $35,000 per beneficiary to a Roth IRA, and that $35,000 cannot all be rolled over at once. Annual rollover amounts cannot exceed annual IRA contribution amounts of $7,000. Additionally, like traditional IRA contribution rules, a beneficiary’s wages in a given year must equal the annual 529 rollover amount.

529 account holders are only eligible for tax and penalty-free IRA rollovers if they’ve had a 529 account for at least 15 years, and the actual money transferred has to have been in the account for at least five years.

Another incentive to start saving as early as possible

The expensive nature of college is already a reason for parents and benefactors to open 529 accounts as soon as possible. Benefactors could already change the beneficiary of a 529 account to a qualifying family member at any time. However, the ability to roll over 529 plans to a Roth IRA account serves as another hedge in case a child chooses to forego college for whatever reason. College is expensive but certainly not out of reach if you take advantage of the power of compounding, so parents should open 529 accounts as soon as possible. If college doesn’t work out, now you can still give your child or another family member a head start on their retirement savings.

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