Latest / The College Savings Podcast with Fexingo: 529 Plans, Education Funding, and Student Costs / How 529 Plans Can Cover Your Child's Driver Education
Transcript
- Lucas: Luna, I want to run something by you. You know how 529 plans can cover K-12 tuition and apprenticeship costs since the Tax Cuts and Jobs Act expanded qualified expenses? Luna: Right. That was a big change. But I'm guessing you're about to tell me there's a less obvious expense that might qualify. Lucas: Exactly. I'm looking at driver education. Specifically, a listener wrote in asking whether they could use 529 funds for their teenager's behind the wheel course. And the short answer is: it depends. Luna: Okay, I'm intrigued. Because my first instinct is no — driver's ed seems too ordinary to count as a qualified education expense. Lucas: That's the common-sense reaction. But the IRS code for 529 plans defines qualified expenses to include tuition for vocational training. And the Department of Education recognizes certain driver training programs as vocational education. Luna: So if it's vocational, it could qualify. But what's the line between a teenager learning to parallel park and actual vocational training? Lucas: The key is whether the program is part of a recognized career pathway. For example, if the driving course leads to a Commercial Driver's License — a CDL — that's clearly vocational. The school has to be an eligible educational institution under Section 529 of the code. Luna: So a typical high school driver's ed program wouldn't cut it. Lucas: Probably not. Most standard driver's ed courses don't meet the vocational training requirement. They're not provided by an eligible institution, and they don't lead to a certificate or license that qualifies for a trade. Luna: But what about a private driving school that offers both standard lessons and CDL prep? Could I use 529 funds for the CDL portion? Lucas: Yes, if that school is Title IV eligible — meaning it participates in federal student aid programs. Many CDL training schools are. So if your child is pursuing a career as a truck driver, you can use 529 funds for tuition, fees, and even equipment like a learning permit or safety gear. Luna: That's a pretty specific use case. But what about a less obvious scenario — say, a student who wants to become a commercial pilot? Flight school already qualifies, but does ground school count? Lucas: Ground school for a pilot's license is generally considered vocational training. So yes, that would qualify. But again, the institution has to be eligible. Not all flight schools are. Luna: So the listener who asked about standard driver's ed for their sixteen-year-old is probably out of luck. But there is a path if the training is tied to a career. Lucas: Right. And I think the bigger lesson here is that 529 plans are more flexible than most people realize. The definition of qualified expenses isn't limited to college tuition. It includes apprenticeship programs, certain trade schools, and even equipment like tools or computers if they're required. Luna: But the documentation is critical. If you're audited, you need proof that the expense was for a qualified purpose. So what should someone keep on file? Lucas: Keep the enrollment agreement from the school, a receipt showing payment, and a course catalog or syllabus that describes the vocational nature of the program. If the school is eligible, they should have a federal school code you can reference. Luna: And if it's a CDL program, the state issues a license. That's pretty clear-cut. But what about defensive driving courses for work? Some employers require them. Lucas: Unlikely to qualify unless it's part of a formal apprenticeship. The IRS looks at whether the program is primarily educational and leads to a credential or employment. A one-day defensive driving seminar probably doesn't meet that bar. Luna: So the golden rule is: if it's a course that could be taken by a traditional college student as part of a degree or by someone in a trade program, it's more likely to qualify. Standard driver's ed for a teenager is not that. Lucas: Exactly. And one more thing — the Tax Cuts and Jobs Act also allows up to $10,000 per year from 529 plans for K-12 tuition at private, public, or religious schools. So if your teen is in private high school, you could pay tuition with 529 funds. Driver's ed offered by that school might qualify as a related expense, but it's a gray area. Luna: I'd want to see a written opinion from the school or a tax advisor before I risked a non-qualified withdrawal. The penalty on earnings is 10% plus income tax. That's steep. Lucas: Absolutely. And the IRS hasn't issued specific guidance on driver's ed for K-12 students. So when in doubt, get a letter from the school confirming the expense is required for the educational program. Luna: Let me think of a real example. A student in a vocational high school program for automotive technology might need a driver's license to participate in internships. That feels more defensible. Lucas: That's a strong case. If the driver's ed is a prerequisite for a co-op or apprenticeship that's part of the curriculum, it could be considered a necessary expense. But I'd still recommend getting a tax professional involved. Luna: And what about online driver's ed courses? Some states allow the classroom portion to be done online. Lucas: Online programs from eligible institutions would likely qualify under the same rules. But again, the institution matters. A state-approved online driver's ed provider that also offers college courses might be eligible. A standalone website selling a course for $50 probably isn't. Luna: So the listener who asked this question — maybe they should shift their thinking. Instead of using the 529 for their own kid's basic driver's ed, they could use it for their own vocational training if they want a career change. Lucas: Great point. 529 plans can be used for the beneficiary, but also for other family members. So if a parent decides to get a CDL, they could use a 529 plan for themselves. Luna: That's actually a clever strategy. Parents sometimes forget they can change the beneficiary to themselves. Lucas: Right. And the rules are generous. You can use 529 funds for any qualified expense at an eligible institution for the beneficiary, and you can change beneficiaries without penalty as long as they're family members. Luna: So if your teenager doesn't go to college, you're not stuck. You can redirect the funds to a trade program, or even to yourself for career training. Lucas: Exactly. And that's the theme I want to land on: 529 plans are not just for four-year universities. They're a versatile savings tool for education and training at any stage of life. Luna: And speaking of versatility — if our conversations about these strategies have helped you think about your own savings differently, we'd love your support. Our show is ad-free, and listener contributions at buy me a coffee dot com slash fexingo help us keep it that way. Lucas: Yeah, it's a simple way to say thanks if you find value in these deep dives. No pressure at all. But it does help us keep the episodes coming without sponsors. Luna: Back to driver's ed — so the takeaway is: vocational training qualifies, but standard teenage driver's ed usually doesn't. Check the institution's eligibility, document everything, and when in doubt, ask a pro. Lucas: And keep in mind that the rules can change. The SECURE Act and other legislation have expanded 529 flexibility over the years. We'll keep tracking those changes so you don't have to. Luna: Next time, we're looking at something I've been curious about: using 529 plans for your child's wedding. That one's been a hot topic online. Lucas: We did that one already in episode 21. But maybe it's worth revisiting with new IRS guidance. Luna: Oh, you're right. I forgot. Well, then let's tackle something else. How about using 529 plans for your own retirement? That's a creative strategy. Lucas: We covered that in episode 11. But there's always a new twist. Actually, I'm hearing about people using 529 funds for their child's business startup costs. That's not currently qualified, but there's legislation proposed. Luna: That's a great angle for a future episode. Let's put a pin in it.