Latest / The College Savings Podcast with Fexingo: 529 Plans, Education Funding, and Student Costs / 529 Plans and Your Child's Music Lessons and Arts Education
Transcript
- Lucas: Luna, I want to start with a number that surprised me. The National Endowment for the Arts estimates that American families with school-age children spend, on average, around $1,100 per year on music lessons, art classes, and associated supplies. That's per child. Luna: And most of that is coming out of post-tax income, right? No tax advantage. Lucas: Exactly. But what if I told you that some of that spending could be done through a 529 plan, growing tax-free and coming out tax-free for qualified expenses? Most people think 529 plans are only for tuition, room and board. But the SECURE Act in 2019 and subsequent IRS guidance have quietly expanded the definition of qualified expenses to include certain arts and music education. Luna: That's a game-changer for parents of creative kids. But I imagine there are strings attached. Lucas: Absolutely. Here's the key: to be a qualified expense with a 529, the instruction has to be part of a program that is a 'qualified higher education expense.' That sounds narrow, but the IRS has clarified that it includes 'tuition, fees, books, supplies, and equipment required for the enrollment or attendance at an eligible educational institution.' And that can include private lessons if they are part of a degree or certificate program at an eligible institution. Luna: Wait—so I can't just pay my kid's piano teacher with 529 money and call it a day? Lucas: Not directly. But there's a workaround. Many community colleges and universities offer non-credit continuing education courses in music or art, and those can be considered 'eligible educational institutions.' So if your child enrolls in, say, a local college's continuing education piano class, the tuition for that class is a qualified expense. And if the class requires a specific music book or a metronome, those supplies are qualified too. Luna: That's clever. So the parent registers the child for a college-affiliated music class, pays with 529 funds, and then the child gets the instruction. The private lesson model doesn't fit, but the college program does. Lucas: Right. And this is where a lot of parents miss opportunities. They assume that because their eight-year-old is taking violin from Ms. Peterson down the street, it can't possibly be a 529 expense. But if Ms. Peterson is affiliated with a local university's preparatory program—many universities have community music schools—then suddenly that lesson is a qualified expense. Luna: So the institution matters more than the instructor. Lucas: Exactly. The IRS looks at who is receiving the payment. If it's made out to an eligible educational institution, it's qualified. If it's a check to an individual teacher, it's not, unless that teacher is an employee of the institution and the payment goes through the institution. That's a critical distinction. Luna: And what about supplies that aren't tied to a specific class? Like if my kid just needs a new flute for band practice at school—can I use 529 money for that? Lucas: Generally, no, unless the flute is required for a course at an eligible institution. For example, if your child is enrolled in a college music program and the syllabus requires a specific instrument, then the purchase of that instrument could be a qualified expense. But for a high school band class? Not eligible, because a high school is not an eligible educational institution for 529 purposes, at least not for this kind of expense. Luna: I think a lot of parents would love to use 529 funds for private K-12 music lessons, especially if they're not planning on college. But that's not allowed under current rules, right? Lucas: Right. K-12 tuition is a qualified expense—up to $10,000 per year, per beneficiary—thanks to the Tax Cuts and Jobs Act. But that's limited to tuition, not lessons or supplies. So if your child attends a private K-12 school, you can pay tuition from a 529, but you can't use 529 money for the after-school violin program unless that program is run by the school and included in the tuition. Luna: It feels like the rules are a patchwork. But for families who are planning for college and also have kids in arts programs, there's real potential to shift some expenses into the 529. Lucas: Absolutely. And one more thing: the SECURE Act also expanded the definition of qualified expenses to include 'expenses for fees, books, supplies, and equipment required for participation' in certain apprenticeship programs registered with the Department of Labor. Some of those apprenticeships are in creative fields—think theater tech, music production, fine arts restoration. So if your child is headed into an apprenticeship, 529 funds can cover related tools and materials. Luna: That's a newer avenue. I know the Labor Department has been expanding registered apprenticeships beyond the trades into fields like graphic design and digital media. Lucas: Exactly. And this is the kind of thing that listeners can leverage. Let's say your child is 16 and passionate about photography. If they enroll in a community college photography course over the summer, the tuition and maybe even the cost of a required camera lens could be covered by a 529. That's a concrete way to reduce your out-of-pocket costs today while your 529 savings grow. Luna: I want to talk documentation. If a parent does use 529 funds for a music class, what records do they need to keep in case of an audit? Lucas: Great question. The IRS requires that you keep records showing that the distribution was used for a qualified expense. For a course at an eligible institution, that means keeping the enrollment confirmation, the syllabus, the receipt of payment, and any documentation showing that the institution is eligible—like a letter or a screenshot from the Department of Education's database. For supplies, keep the receipt and a note linking it to the course requirement. Luna: And if you take a non-qualified distribution, the earnings portion is subject to income tax plus a 10 percent penalty. So it pays to be careful. Lucas: It really does. But the upside is significant. Over the course of a child's childhood, those music lessons and art classes can add up to tens of thousands of dollars. If even a portion of that can be run through a 529, you're saving at your marginal tax rate on the growth. For a family in the 22 percent bracket, that's real money. Luna: Let's talk about one more nuance: What about online arts education? There are tons of platforms offering live music instruction from top conservatory faculty. Can those be 529-eligible? Lucas: It depends on whether the platform is affiliated with an eligible educational institution. Some online music schools are themselves accredited and eligible—for example, Berklee Online offers certificate programs that are eligible for federal financial aid, so those would qualify. But a standalone website that connects you with a private tutor? Probably not, unless that tutor is working through a college. Luna: So the key is to look for programs that are either run by or in partnership with a college or university. Lucas: Exactly. And I'd add: community music schools affiliated with universities are a hidden gem. Many of them offer sliding scale fees, and they're set up to accept 529 payments directly. The parent just needs to ask the billing office if they can process a 529 distribution. Luna: That's a simple step that could save hundreds of dollars a year in taxes. Lucas: And we should mention: the clock is ticking on the expanded 529 benefits. The SECURE Act provisions are permanent, but the K-12 tuition provision is set to expire after 2025 unless Congress extends it. So if you have a child in private K-12, you might want to use your 529 for tuition before the end of next year. Luna: Good reminder. So to sum up: 529 plans aren't just for college tuition anymore. With careful planning, they can help cover music lessons, art classes, and even some supplies, as long as those expenses are tied to an eligible educational institution. The trick is to route the payment through the institution, not the individual teacher. Lucas: And always keep your documentation. If you're unsure about a specific expense, you can request a private letter ruling from the IRS—or, more practically, ask your 529 plan administrator. They've usually seen these questions before. Luna: That's a solid next step for anyone listening. Thanks, Lucas. That was really illuminating. Lucas: Thanks, Luna. And to our listeners: if you've got a creative kid and a 529 plan, you might have more flexibility than you think. Check with your plan and your child's music or art program—you might be pleasantly surprised.