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An owner would incur a $2,500 monthly penalty if the ADU is rented to a nonqualified tenant ahead of time.

You could also take a nonqualified payment from your 529, but you would have to pay taxes on any earnings plus any additional fees.

If you use any of your plan’s earnings on a nonqualified expense, you’ll pay taxes on those earnings plus a 10% penalty to the feds and a 2.5% penalty to California.

Health insurance is deemed a “nonqualified” expense under Internal Revenue Service rules, according to an online overview from Richard Polimeni, director of education savings programs at Bank of America.

Nonqualified mortgage lending came to a standstill in March.