Latest / The College Savings Podcast with Fexingo: 529 Plans, Education Funding, and Student Costs / How 529 Plans Cover Apprenticeship Program Costs
Transcript
- Lucas: Luna, I want to talk about a 529 plan use that I think a lot of our listeners haven't considered. When we talk about college savings, we're usually picturing a four-year university. But the SECURE Act of 2019 quietly opened the door for 529 funds to pay for registered apprenticeship programs. Luna: Right, I remember that change. But I think most families still don't know about it. What exactly counts as a qualified apprenticeship expense? Lucas: The law says any costs for a registered apprenticeship program under the National Apprenticeship Act. That includes application fees, exam fees, required tools, textbooks, safety gear, even the cost of a laptop if it's required for the program. And importantly, it covers room and board — but only if the apprentice is enrolled at least half-time. Luna: Half-time for an apprenticeship — is that measured in credit hours like college, or is it based on hours worked? Lucas: It's based on the program's schedule. Most registered apprenticeships require a minimum of 144 hours of classroom instruction per year and 2,000 hours of on-the-job training. So the Department of Labor considers that full-time. As long as the program is registered, the student qualifies. Luna: And when you say registered — that's key, right? Not every on-the-job training program qualifies. Lucas: Exactly. It has to be registered with the Department of Labor or a state apprenticeship agency. So a formal union apprenticeship in electrical work or plumbing — those are registered. An internship at a tech startup, even if it pays a stipend, generally wouldn't qualify. Luna: Let's get concrete. What would a typical apprenticeship cost look like for a family using a 529? Lucas: Take a union electrical apprenticeship in Chicago. The International Brotherhood of Electrical Workers Local 134 program charges about $1,500 a year in tuition and fees for classroom instruction. Then you have tools — a basic electrician's tool kit runs around $500. Work boots, safety glasses, hard hat — another $200. Textbooks and code books — maybe $400. So before room and board, you're looking at roughly $2,600 a year. The program is five years, so total eligible costs around $13,000 to $15,000. Luna: And room and board — if they're living away from home, that's where the big numbers come in. But does the 529 treat that differently than it would for a college student? Lucas: Same rules apply. The student needs to be enrolled at least half-time, and the room and board expense can't exceed the school's official cost of attendance. For apprenticeship programs, the Department of Labor provides a cost of attendance figure that the program administrator can supply. So yes, a family could use 529 funds to pay for an apartment near the training center. Luna: That's actually a game-changer for parents whose kids aren't interested in a traditional four-year degree. I've seen numbers from the Georgetown Center on Education and the Workforce — some apprenticeships in fields like elevator installation or power line work have median earnings over $80,000 a year after just a few years. Lucas: And you start earning from day one. Apprentices are paid a percentage of the journeyman wage, typically starting around 40 to 50 percent, with raises every six months. So you're not just saving on tuition — you're also bringing in income. And the 529 can cover those pre-apprenticeship costs that happen before you get that first paycheck. Luna: What about taxes? If you take money out of a 529 for a qualified apprenticeship expense, it's all tax-free, same as for college? Lucas: Yes, the earnings portion of the withdrawal is federal-income-tax-free and state-income-tax-free in most states. But there's a catch — not all states conformed to the federal SECURE Act rules. Some states still only recognize college expenses as qualified, so if you claim a state tax deduction on your contribution and then use the money for an apprenticeship, you might have to recapture that deduction. Luna: How many states are we talking about? Lucas: As of July 2026, most states have come around. According to the College Savings Plans Network, about 44 states plus D.C. have conformed. The holdouts are mostly states with very small 529 programs. California and New York, for example, both conformed back in 2020. So the risk is low, but you should check your specific state plan's rules. Luna: Let me ask a practical question. Say a family has been contributing to a 529 for 15 years, expecting their child to go to a four-year university. The child decides senior year they want to do a plumbing apprenticeship instead. Can they just redirect those funds? Lucas: Absolutely. You can change the beneficiary to a qualified family member, or you can keep the beneficiary the same and just use the funds for the apprenticeship costs. The only thing to watch is if the child gets a scholarship or employer tuition reimbursement — you can withdraw an amount equal to the scholarship penalty-free, but you'll pay income tax on the earnings. Luna: But if they just use the 529 for the apprenticeship, no penalty at all. Lucas: Correct. As long as the expense is qualified. And one more thing — the apprenticeship has to be registered. If it's a non-registered on-the-job training program, the withdrawal would be treated as a non-qualified distribution. You'd pay income tax on the earnings plus a 10 percent penalty. Luna: So the onus is on the family to verify registration. How do they do that? Lucas: The Department of Labor has a searchable database at apprenticeship.gov. You can look up any program by location or trade. Also, ask the program coordinator directly — they should be able to provide their registration number. If it's a union program, it's almost certainly registered. Luna: What about tools that aren't required but are helpful? Say a cordless drill set that costs $600. Would that qualify? Lucas: The IRS says tools and equipment required for participation in the program. So if the program's materials list says you need a cordless drill, yes. If it says a basic tool kit, and you upgrade to a premium set, the extra cost might not be considered required. I'd stick to the list. Luna: Let's also talk about transportation. Can a 529 pay for a bus pass or gas to get to the job site? Lucas: Transportation is not a qualified expense for 529 plans — not for college, not for apprenticeships. The room and board rule covers housing and meals, but not commuting costs. So that would have to come out of pocket. Luna: That's a bummer, because apprentices often have to travel to different job sites. But still, the core expenses are covered. I think this is a really underused benefit. I read a statistic from the Department of Labor — there were over 600,000 registered apprentices in 2025, and the number is growing. Yet most 529 account holders still think it's just for college. Lucas: And the average starting salary for an apprentice after completion is over $70,000 a year. Compare that to the average college graduate who might start around $55,000 but has $30,000 in student loans. Financially, apprenticeships can be a smarter path for many students. Luna: It's also worth noting that you can use 529 funds for apprenticeship-related fees even if the program is offered through a community college or technical school. So a two-year pre-apprenticeship program at a community college that's part of a registered apprenticeship — that counts too. Lucas: Yes, the community college tuition would be a qualified expense anyway under normal 529 rules. But if the college program is just a component of the larger registered apprenticeship, you get the added benefit of covering tools and equipment through the same account. Luna: One question I hear from parents: what if my child starts an apprenticeship, drops out after a year, and then decides to go to college? Can they still use the remaining 529 funds? Lucas: Yes, the funds are still there. You can change the beneficiary to another family member, or keep the same beneficiary and use the funds for college later. There's no time limit. The only potential issue is if you took a state tax deduction for contributions and then used the funds for a non-qualified purpose — but as long as the apprenticeship was registered, the withdrawals were qualified. Luna: So there's really no downside to using the 529 for an apprenticeship, tax-wise, as long as the program is legit. Lucas: Exactly. And I think that's the message we want to get across. If you're a parent saving in a 529 and your child is leaning toward a trade, don't stop contributing. You have a perfectly good way to use that money. Luna: And if your child is already in an apprenticeship and you haven't been using the 529, you can still start contributing now. You can even reimburse yourself for qualified expenses paid in the same tax year. Lucas: Right. You just need to keep receipts and document that the expense was paid after the 529 account was opened. There's no rule that says you have to have the account before the apprenticeship starts. Luna: I want to circle back to something you mentioned earlier about state conformity. What should a listener do if they live in a state that hasn't conformed? Lucas: First, check if your state's 529 plan explicitly lists apprenticeship expenses. Some plans have been updated even if state law hasn't. If it's not allowed, you can still use the funds federally — you just might owe state income tax on the earnings. But in practice, if the state hasn't conformed, they likely don't have a mechanism to track the reason for withdrawal, so it's often not an issue. But I'd recommend consulting a tax professional. Luna: So the federal rules are clear. State rules are mostly clear but have a few exceptions. Lucas: Exactly. And the trend is toward conformity. I'd be surprised if any state still hasn't conformed by 2030. Luna: You know, we talk a lot on this show about the flexibility of 529 plans — how they can cover study abroad, K-12 tuition, even Roth IRA rollovers now. But the apprenticeship angle might be the most impactful for families who feel like the 'college for everyone' message doesn't fit their child. Lucas: I agree. And I think it's worth noting that the skilled trades are facing a serious labor shortage. The National Association of Home Builders estimates the construction industry needs to add over 500,000 workers in the next three years. Apprenticeships are a direct pipeline to those jobs. Using a 529 to fund them is just smart planning. Luna: And on that note, if our conversations about saving for education — whether it's college or an apprenticeship — have helped you think about your own planning differently, we want to mention that listener support is what keeps this show ad-free and accessible. A couple of dollars a month genuinely makes a difference. You can help at buy me a coffee dot com slash fexingo. Lucas: Yeah, it's a small thing that adds up. We appreciate everyone who chips in. Luna: Alright, back to the numbers. Lucas, what's one piece of advice you'd give a parent who's considering using a 529 for an apprenticeship starting this fall? Lucas: First, confirm the program is registered. Then, calculate the total eligible costs for the first year — fees, tools, books, room and board. If you don't have enough in the 529, you can make a contribution today and use those funds immediately, as long as the expense hasn't been paid yet. And keep every receipt. Luna: And if you're just starting to save, even small monthly contributions can add up over the course of a five-year apprenticeship. Lucas: Absolutely. So whether your child is headed to Harvard or to a union hall, a 529 plan can be part of the plan. Luna: Thanks for listening. We'll be back next time with another angle on education funding.