Monday, September 15, 2014
Internships enable students apply what they are learning in the classroom to the real world. Yet, if you plan in applying funds from a 529 tax-advantaged college savings account to cover all of these expenses related to an internship, think again.
When funding an internship experience you must first know how much it is going to cost. Costs of travel, housing, and food can quickly add up, and it is important to take these things into consideration.
To figure out how to use any available 529 savings for internship costs during the school year, the most significant factor is whether the student will earn college credit. “Internships are great opportunities to get some real hands-on knowledge. Regardless of whether the internship is paid or unpaid, the bigger question is: Is a student earning school credit for an internship?” If earning school credit, there typically is a fee for that because credit hours cost money. In that case, the credit hours for the internship are tax-free.”
Furthermore, you must be enrolled in school. If you take it out of the college context, an internship is just a job and you cannot use 529 funds.
Financial experts advise against using 529 funds for expenses such as travel and food. The 529 is typically for tuition, room and board and books. With 529 funds, it is the responsibility of students and their families to use the money in ways that are eligible or else face the consequences of tax penalties. Remember that you are bound by the IRS rules.
See Lori Johnston, Turn to 529 Plan Savings for Some Internship Expenses, U.S. News & World Report, Sept. 12, 2014.