Latest / The College Savings Podcast with Fexingo: 529 Plans, Education Funding, and Student Costs / How 529 Plans Cover Your Childs Summer Camp Costs
Transcript
- Lucas: It's mid-July, and if you're a parent, you might be neck-deep in summer camp logistics — drop-offs, pickups, the inevitable sunburn, and a credit card bill that's climbing faster than the temperature. Luna: Yeah, and for anyone with a 529 plan, there's a question that comes up every summer: can I use this money to pay for camp? Lucas: And the answer is yes — but with a few critical caveats. The IRS allows 529 funds to cover summer camp costs, but only if the camp qualifies as an 'educational program.' That's the key phrase. Luna: So not every camp makes the cut. What exactly qualifies? Lucas: The rule comes from the Tax Cuts and Jobs Act of 2017, which expanded 529 qualified expenses to include K through 12 tuition. And as part of that, the IRS clarified that summer camps — both day camps and sleepaway camps — are eligible, but only if the camp's primary purpose is education or enrichment, not just babysitting. Luna: Okay, so a general day camp where kids play dodgeball and make lanyards — that's probably out? Lucas: Right, that's the gray area. The IRS looks at the camp's curriculum. If it's a STEM camp where kids are learning coding or robotics, that's clearly educational. A wilderness survival camp that teaches leadership and outdoor skills — that also counts. But a camp that's essentially a pool party with some crafts? That's recreational, not educational, and the IRS could disallow the expense. Luna: So what about a music camp — like a band or orchestra intensive? Lucas: That would likely qualify because it's structured instruction. The camp's materials should describe it as an educational program. And importantly, the expense needs to be for the camp's tuition and fees — not for extras like T-shirts, field trips that are purely fun, or special equipment. Luna: Got it. And sleepaway camps — the ones that cost a small fortune — can those also be paid with 529 funds? Lucas: Yes, as long as the camp is educational. The IRS doesn't differentiate between day and overnight camps. So if your child is going to a two-week science camp at a university, you can use 529 money for the tuition, room, and meals. Just keep the enrollment contract and the camp's educational mission statement in your files. Luna: And what about camps that are just sports — like soccer or basketball camps? Lucas: That's trickier. A soccer camp that focuses on skill development might qualify if it's structured and instructional. But a general recreation camp where kids just play games all day — that's not educational in the IRS's eyes. The burden is on you to prove the camp has an educational component. So if you're planning to use 529 money, ask the camp for a written description of the curriculum. Luna: And if you take a distribution and the IRS later questions it, what's the penalty? Lucas: The earnings portion of the distribution becomes taxable income, plus a 10 percent penalty. So if you took out $5,000 and $1,000 of that was earnings, you'd owe income tax on that $1,000 plus a $100 penalty. It's not catastrophic, but it's avoidable if you do your homework upfront. Luna: So the key is documentation. What exactly should parents keep? Lucas: Keep the camp's enrollment agreement, the brochure or website description that highlights the educational aspects, a receipt for the payment, and any certificates or transcripts the camp provides. If you're ever audited, that's your evidence. I'd also recommend writing a brief note on the receipt noting the educational purpose — just as a memory aid. Luna: Makes sense. And this applies to camps for any age? Up through college? Lucas: The 529 plan is for the designated beneficiary — usually your child — and the rules apply regardless of age. So if your college-age kid goes to a summer research program at a university, that's eligible. Same for a high school student attending a pre-college academic camp. The key is that the beneficiary is enrolled. Luna: Now, what about camps that are run by the same institution where the beneficiary is enrolled? Say a university summer program — can 529 funds cover that? Lucas: Absolutely. In fact, that's a very common use. Many universities offer summer enrichment programs for high school students, and those are often eligible. You just need to make sure the program is structured as a course or curriculum, not just a tour or orientation. Luna: And if the camp doesn't qualify, what are the alternatives? I mean, you still have to pay for camp somehow. Lucas: You can always take a non-qualified distribution and pay the tax and penalty, but that's usually not ideal. Better to use other savings or income for recreational camps and reserve your 529 for educational ones. That way you avoid the penalty and keep the tax-free growth for college. Luna: One more thing — can you use 529 funds to pay for camp for a child who isn't the designated beneficiary? Like a sibling or a grandchild? Lucas: No, the expense must be for the named beneficiary. But you can change the beneficiary on a 529 plan to another family member. So if you have one child using 529 funds for camp, and another child goes to a different camp, you could change the beneficiary to the second child, then pay for their camp. Just be aware of the generation-skipping transfer tax implications if you're skipping generations. Luna: That's a great strategy. So let's say you have a 529 plan for your oldest, but your younger child is the one attending a qualifying camp. You can switch the beneficiary, use the funds, then switch back? Lucas: Exactly. And there's no limit on how often you can change beneficiaries, as long as the new beneficiary is a family member. So it's flexible. Just keep good records of the changes. Luna: Alright, so the takeaway: summer camp can be a qualified 529 expense if it's educational. Day or overnight, doesn't matter. Documentation is critical. And you can switch beneficiaries if needed. Lucas: That's the nutshell. And honestly, given how expensive summer camps have become — the average sleepaway camp runs between $700 and $1,000 per week — using pre-tax 529 dollars can make a real difference. It's one of those lesser-known perks that can help stretch your education savings. Luna: Yeah, and if you're listening and thinking, 'I wish I'd known this sooner,' you're not alone. A lot of parents don't realize this is an option. But starting now, you can plan for next summer. Lucas: And if these conversations have helped you think about your own savings strategy differently, it's worth mentioning that listener support is what keeps this show ad-free and independent. A couple of dollars a month genuinely makes a difference — buy me a coffee dot com slash fexingo. Luna: Yeah, it's a small gesture that helps us keep doing these deep dives. And we appreciate every bit of it. Lucas: So back to camps — one thing I want to emphasize is that the IRS doesn't require you to file anything at the time of distribution. You just report it on your tax return form 1099-Q, and you note that the distribution was for qualified expenses. But if you ever get audited, you'll need those receipts. Luna: And what about camps that are partially educational and partially recreational? Like a camp that does science in the morning and free swim in the afternoon? Lucas: That's a gray area. The IRS hasn't given clear guidance on mixed-purpose camps. The safest approach is to use 529 funds only for camps that are primarily educational. If in doubt, you can allocate — use 529 money for the educational portion and pay for the recreational part out of pocket. But that's hard to separate. Most parents just choose camps that clearly qualify. Luna: So let's wrap with a concrete example. Say you have a 529 account with $20,000 and your child is attending a two-week coding camp that costs $2,500. You take a distribution of $2,500. No tax, no penalty, as long as you have documentation. Correct? Lucas: Correct. And that $2,500 grows tax-free because it's used for a qualified expense. If you'd paid with after-tax money, you'd have to earn more than $2,500 to net that amount after taxes. So the 529 gives you a real advantage. Luna: And if the camp is not qualified, the same $2,500 distribution would trigger tax on the earnings — say $500 of earnings — plus a $50 penalty. So you'd owe around $200 in total, depending on your tax bracket. Lucas: Exactly. So it's worth the extra effort to verify the camp's educational nature. Ask the camp director: 'Is this an educational program?' Get it in writing. Most camps that have any academic component are happy to provide that. Luna: Alright, I think we've covered the essentials. Anything else, Lucas? Lucas: Just one thing — if you're using a 529 plan to pay for camp, make sure the distribution is made to you or the camp, not to the child. If the check is made out to the child, it could be considered a gift and might have different tax implications. So handle it like any other qualified expense: pay the camp directly or reimburse yourself. Luna: Good point. And with that, we hope you and your kids have a great rest of the summer — and maybe save a little on camp in the process. Lucas: Thanks for listening. We'll be back next episode with another angle on college savings.