College Savings Watch: Stimulus Bill Permits Use of 529 Funds for Computers

Expands permitted use of college savings vehicle for student computer purchase

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Among the positive developments for investors in President Obama's $790 billion economic stimulus plan, which was set to be signed into law on February 17, is a small provision that provides 529 plan owners with more flexibility when it comes to spending money in the college-savings vehicle. The College Savings Plans Network (CSPN), an affiliate of the National Association of State Treasurers (NAST), said it worked closely with leaders in Congress to allow families to use money from 529 college savings plans to purchase computers and related technology.

Until this legislation passes, 529s could be used to pay for computers only if they were required by the college or by a specific degree program or course. Previously, eligible expenses included only tuition, room and board, books, supplies, and equipment that was required for attendance at the school.

"Given the increasing technological needs of today's students, it makes sense for computers to be allowed as a qualified expense under Section 529 plans. The reality is that any student who does not have a computer will find it increasingly difficult to succeed in college and will find their skills compromised as they enter the workforce," said Jackie Williams, executive director of the Ohio Tuition Trust Authority in announcing the news.

Joseph Hurley, 529 guru and founder of SavingForCollege.com, took to his blog to comment on the Senate's version of the American Recovery and Reinvestment Act of 2009, which includes the provision that would allow 529 owners to take tax-free withdrawals from their plan to pay for computers and family Internet access while the beneficiary is in college--similar to the existing provision for K-12 computer expenses using a Coverdell education savings account. "It's nice to see something for 529 plans in the economic stimulus bill, even if it isn't anything too big," Hurley writes.

Other provisions of the plan affecting higher education include the increased maximum for a Pell Grant, which was raised by $500 to $5,350, and a $2,500 tax credit to help cover the costs of higher education. However, students will need to spend at least $4,000 a year to receive the full credit.

The U.S. Government Printing Office has published the final text of the legislation here.

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