Colorado residents: Some expenses that are federally qualified are not qualified for Colorado state tax purposes (K–12 tuition, student-loan payments, and 529→Roth IRA rollovers)
A 529 plan is a flexible and valuable tool, but its benefits depend on using the funds for expenses that meet the IRS guidelines. On a federal and state level, there may also be differences in what is considered a qualified expense, so it’s important to be aware of what is eligible. According to the IRS, these are the qualified expenses for 529 plans:
At eligible postsecondary institutions, including community colleges, four-year universities, apprenticeships, and trade schools.
All supplies, including books and equipment, qualify for college students.
Qualified for college, trade schools and apprenticeships. Please note non-educational and gaming software is not a qualified expense
Room and board qualify for tax-free withdrawal, provided the student is enrolled at least half-time and the amount doesn’t exceed the school’s published cost of attendance for room and board. For off-campus housing, the qualified amount cannot exceed the actual on-campus housing charge.
Apprenticeship programs must be registered with the Department of Labor to qualify as a 529 plan expense. Eligible items include fees, books, supplies, and any equipment required.
The Freedom to Invest in Tomorrow’s Workforce Act expanded 529 plan’s expenses eligibility to include tax-free withdrawals for obtaining and maintaining postsecondary credentials, licenses, and professional certifications. This includes skilled trades training, professional licenses in nursing, teaching, or other state-regulated fields, accountancy or bar exam fees, as well as other technical certifications.
As of 2024, 529 plans were expanded to include transfers of leftover funds to a beneficiary’s Roth IRA. You may transfer up to $35,000 tax-free and penalty-free if you meet certain requirements. Colorado legislation has not taken any action on the tax treatment of Roth rollovers.
Just as important as knowing what qualifies is understanding what doesn’t. Certain education-related purchases may seem reasonable but fall outside the IRS definition of a qualified expense. Spending 529 funds on these items can trigger taxes or penalties, so it’s worth reviewing a few common examples.
Non-qualified expenses include:
Two common areas of confusion exist regarding qualified expenses: technology and off-campus housing. For technology, only computers, peripherals (like mice or speakers), and software primarily used for coursework are covered. Items such as gaming consoles or tablets bought for general use are not. For off-campus housing, the limit is determined by the school’s cost of attendance. Any rent or utility costs exceeding this amount are deemed non-qualified.
By separating these categories early, you’ll have fewer surprises when it’s time to report withdrawals at tax season.
Maximizing your 529 benefits depends not only on qualified expenses but also on the timing and how you withdraw. Following a few simple practices can help ensure your withdrawals remain fully tax-free and compliant with federal rules.
Try to match your withdrawal to the year you pay the expense. The IRS offers a small grace period, allowing qualified expenses that begin in the same tax year or within the first three months of the next. This gives families some leeway for tuition payments made around the start of a new semester.
Hold onto receipts, invoices, and account statements for every expense you pay with 529 funds. Pay schools or vendors directly from the 529 account rather than reimbursing yourself. It simplifies tracking and provides a clear paper trail.
If a school issues a refund for a qualified expense—such as a course you dropped—you have 60 days to recontribute that amount to a 529 plan for the same beneficiary. Doing so preserves the tax-free status of the funds and avoids an accidental penalty.
You cannot claim both a tax-free 529 withdrawal and an education tax credit (such as the American Opportunity or Lifetime Learning Credit) for the same dollars. Track which expenses you apply to each benefit to stay compliant.
To qualify, the student must be enrolled at least half-time, and the amount withdrawn must stay within the school’s published cost-of-attendance limit for housing and meals. Keep records of rent payments and meal plans to verify eligibility if needed.
By observing these guidelines, you’ll not only protect the tax advantages of your 529 plan but also maintain clean, verifiable records that make reporting easy at the end of the year.
When in doubt, it helps to keep a simple reference on hand. The chart below summarizes the most common 529-eligible expenses and the items that typically fall outside IRS guidelines. This is not an exhaustive list, but it covers the categories most families encounter when planning withdrawals.
| EXPENSE | FEDERAL RULE | COLORADO STATE RULE |
|---|---|---|
| Tuition & Required Fees | Qualified | Qualified |
| Books, Supplies, Required Equipment | Qualified | Qualified |
| Computers, Peripherals & Internet (primarily for study) | Qualified | Qualified |
| Room & Board (student enrolled at least half-time; within COA limits) | Qualified | Qualified |
| Registered Apprenticeship Program Costs | Qualified | Qualified |
| Professional Credentials, Licenses, & Certifications | Qualified | Qualified |
| K–12 Tuition (up to $10k/year per student) | Qualified | Not Qualified |
| Student Loan Repayment (lifetime $10k per person) | Qualified | Not Qualified |
| 529 – Roth IRA Rollover (conditions apply) | Qualified | Pending State Legislation |
| Travel & Transportation | Not Qualified | Not Qualified |
| Insurance Premiums | Not Qualified | Not Qualified |
| Fraternity/Sorority Dues, Clubs, Sports Fees | Not Qualified | Not Qualified |
| Electronics & Personal Items (not required for coursework) | Not Qualified | Not Qualified |
| Room & Board above COA allowance | Not Qualified | Not Qualified |
The Tax Cuts and Jobs Act of 2017 expanded the qualified use of 529 savings accounts by allowing withdrawals for K-12 tuition expenses. Section 529 of the federal tax code sets the general rules of qualified tuition programs, which authorizes each state to administer its own program and determine its unique state tax treatment and other policies.
In Colorado, the intent of the state’s 529 college savings plan, CollegeInvest, is to encourage savings for higher education. Colorado tax law remains unchanged and CollegeInvest 529 plans can only be used for qualified higher education expenses. Any other use, including K-12 tuition expenses, are considered non-qualified withdrawals and subject to penalties.
At the federal level, yes, up to $10,000 per borrower in a lifetime, plus an additional $10,000 for each sibling. In Colorado, these withdrawals are considered non-qualified for state tax purposes.
Room and board are eligible if the student is enrolled at least half-time. The amount you withdraw cannot exceed the school’s published housing allowance or the actual on-campus housing charge. Keep rent and meal plan receipts in case of an audit.
You can recontribute the refunded amount to any 529 account for the same beneficiary within 60 days to preserve tax-free treatment. If not recontributed, the refund may be considered a non-qualified withdrawal.
Yes. Anyone in the United States with a valid Social Security Number (SSN) or a Taxpayer Identification Number (TIN) can open and use a CollegeInvest 529 plan. Please note that both the account owner and the beneficiary need a valid SSN or TIN to open a 529 plan. Non-residents simply do not receive Colorado’s state income tax deduction.
The SECURE 2.0 Act allows limited rollovers from a 529 to a Roth IRA under specific conditions: the 529 must be open for at least 15 years, contributions must be at least 5 years old, transfers must stay within annual Roth IRA limits, and the total rollover cannot exceed $35,000 per lifetime. Industry experts note that details on earned-income interaction remain under review, and Colorado legislation has not taken any action on the tax treatment of Roth rollovers.
Understanding what counts as a qualified expense (and how to manage withdrawals correctly) can make a real difference in how far your education savings go. Whether you’re saving for college, or planning future transfers, having expert guidance helps ensure every dollar is used wisely.
A CollegeInvest 529 plan offers flexible options, federal and state tax advantages, as well as a variety of investment choices to match your family’s goals. Opening an account takes only a few minutes, and you can start with any amount that fits your budget. Open a CollegeInvest 529 Plan.
Our team can walk you through timing your withdrawals, understanding Colorado’s unique rules, and ensuring your expenses stay qualified. Contact us to schedule a one-on-one consultation.
Download our Qualified vs. Non-Qualified (Colorado) Checklist for a concise breakdown of federal and Colorado-specific rules. It’s a quick, printable guide you can keep for reference throughout the year.
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To learn about the investment objectives, risks, costs, and other important information regarding any of the CollegeInvest 529 plans, read and consider carefully the Plan Disclosure Statement (PDS) at collegeinvest.org before investing. Also, check with your or your beneficiary’s home state to learn whether it offers state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors for investing in its own qualified tuition plan.
Investments are not guaranteed by CollegeInvest, the State of Colorado, or any of its agencies, and may lose value including the principal amount invested.
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