From the Economic Stimulus Plan- 529 Funds Can be Used for Computers, Software, and Peripherals

by RC on March 11, 2009

Did you know the economic stimulus plan included the addition of computer technology and equipment, including internet access,  as a “qualified higher education expense” for 2009 and 2010. Now this may only help you if:

  • Either you are in college, or have a child in college
  • You have a 529 plan for yourself or your child
  • and you have enough money in the 529 plan to pay for all of the other qualified education expenses (tuition, books, etc.) as well as a new computer.

What this would allow you to do is pay for a new computer, internet access, software, and other peripherals with money that has grown tax free from a 529 plan. With the state of the economy as it is, I am not sure if it will help too many people, but I am sure some will be able to take advantage of it.

I am sure there are other ways you could put this to use, but it all depends on your personal situation. For example, perhaps you could pay for a computer, internet, and other items with a 529 and then take a tax deduction for educational expenses, either the $4000 tax credit, the Hope Scholarship or Lifetime Learning tax credits.

From the text of the stimulus bill:

SEC. 1005. COMPUTER TECHNOLOGY AND EQUIPMENT
ALLOWED AS A QUALIFIED HIGHER EDUCATION
EXPENSE FOR SECTION 529 ACCOUNTS IN
2009 AND 2010.

(a) IN GENERAL.—Section 529(e)(3)(A) is amended by striking ‘‘and’’ at the end of clause (i), by striking the period at the end of clause (ii), and by adding at the end the following:
‘‘(iii) expenses paid or incurred in 2009 or 2010 for the purchase of any computer technology or equipment (as defined in section 170(e)(6)(F)(i)) or Internet access and related services, if such technology, equipment, or services are to be used by the beneficiary and the beneficiary’s family during any of the years the beneficiary is enrolled at an eligible educational institution.
Clause (iii) shall not include expenses for computer software designed for sports, games, or hobbies unless the software is predominantly educational in nature.’’
(b) EFFECTIVE DATE.—The amendments made by this section shall apply to expenses paid or incurred after
December 31, 2008.

Note-you can’t buy software that is considered a game!

And from the text of the tax code mentioned above-for definitions of what qualifies

(F) Definitions
For the purposes of this paragraph—
(i)Computer technology or equipment The term “computer technology or equipment” means computer software (as defined by section 197 (e)(3)(B)), computer or peripheral equipment (as defined by section 168 (i)(2)(B)), and fiber optic cable related to computer use.

(B) Computer software defined
For purposes of subparagraph (A), the term “computer software” means any program designed to cause a computer to perform a desired function. Such term shall not include any data base or similar item unless the data base or item is in the public domain and is incidental to the operation of otherwise qualifying computer software.

(B) Computer or peripheral equipment defined
For purposes of this paragraph—
(i) In general The term “computer or peripheral equipment” means—
(I) any computer, and
(II) any related peripheral equipment.
(ii) Computer -The term “computer” means a programmable electronically activated device which—
(I) is capable of accepting information, applying prescribed processes to the information, and supplying the results of these processes with or without human intervention, and
(II) consists of a central processing unit containing extensive storage, logic, arithmetic, and control capabilities.
(iii) Related peripheral equipment The term “related peripheral equipment” means any auxiliary machine (whether on-line or off-line) which is designed to be placed under the control of the central processing unit of a computer.
(iv) Exceptions The term “computer or peripheral equipment” shall not include—
(I) any equipment which is an integral part of other property which is not a computer,
(II) typewriters, calculators, adding and accounting machines, copiers, duplicating equipment, and similar equipment, and
(III) equipment of a kind used primarily for amusement or entertainment of the user.

I would take this to mean printers, scanners, and the like. It is important that if you are able to take advantage of this, you read all of the associated documentation, and consult with a 529 and/or tax expert to make sure you are following the rules.

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