<p>I'm not clear on the guidelines for withdrawals from 529 plans for "qualified education expenses". If my daughter lives in an apartment and is not on a meal plan, are these still considered qualified expenses for withdrawal purposes? Even looking at our plan's guidelines, I'm still confused. Our accountant seems uncertain also. How have others dealt with this?</p>
<p>You may charge the actual amount of room and board incurred to the 529 Plan, as long as you do not charge more than what the school lists as the room and board amount in the cost of attendance (for Federal aid purposes).</p>
<p>"Expenses for room and board must be incurred by students who are enrolled at least half-time. The expense for room and board qualifies only to the extent that it is not more than the greater of the following two amounts. </p>
<p>The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student. </p>
<p>The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution."</p>
<p>[Publication</a> 970 (2010), Tax Benefits for Education](<a href=“Publication 970 (2022), Tax Benefits for Education | Internal Revenue Service”>Publication 970 (2022), Tax Benefits for Education | Internal Revenue Service)</p>
<p>I hope this helps!</p>
<p>If your daughter is at least a half-time student living off campus, room and board are qualified education expenses, but limited to the amount per semester that the college includes in its “cost of attendance” calculation for federal financial aid purposes. You should be able to get that amount from her financial aid award, or if there isn’t any then from the financial aid office (and possibly the college’s website, but I wouldn’t rely on that, since the COA for these purposes may vary if she is living off campus).</p>
<p>You should keep a record of her rent paid, especially if she is paying a roommate, or subletting informally. In theory, she should keep a log of her food expenses, too, because if her actual “board” expenses are less than the COA amount (after her rent is deducted), then she couldn’t take the maximum possible tax-free distribution. In practice, I’m not certain anyone actually does that. It’s hard to imagine the IRS going after someone without other abusive facts (like, she was living at home, not paying rent, and taking out the maximum for room and board).</p>
<p>Thank you both for the helpful information!</p>
<p>We just had the money sent directly to the Bursar. Is that wrong?</p>
<p>That’s fine, but it doesn’t help much with non-tuition/fee expenses if you are living off campus and don’t have a meal plan.</p>
<p>Last year, purchase of a computer, software and internet access for a student was an eligible expense. However, I read one source that said that part of the tax code may have expired, and instead the law for 2011 has gone back to the rule that technology expenses are only eligible if they are required by the university. Anyone know about this??</p>
<p>That’s right. There was broad authority to treat a student’s technology purchases during 2009 and 2010 as qualified higher education expenses, but that was not extended to 2011-2012 (unlike most other tax breaks). There is a separate provision in the statute that treats equipment one is required to obtain to enroll or attend as a qualified expense, and that remains in effect.</p>
<p>^^^ wow, that must have been buried somewhere alot of people have not seen…thank you VERY much for posting!!!</p>
<p>Trying to get some information on qualified 529 plan withdrawals as they pertain to scholarship amounts. Tried searching this forum but did not run across any previous threads that specifically addressed my question. Please re-direct me to a previous thread if I missed something in my search.</p>
<p>S is taking advantage of Alabama’s NMF scholarship which covers tuition, room (only) and a $1,000 cash stipend each year. Per IRS Publication 970, that portion of the scholarship that covers tuition and the $1K stipend (if used for books & supplies) are qualified educational expenses and therefore not taxable if I understand the regs correctly. It appears that the other portion of the scholarship which covers room costs will be taxable. Question - can we still withdraw the total $$ amount for tuition, books & supplies from his 529 plan each year without incurring penalties even though this amount is paid for by the university under the terms of the scholarship? Or are we strictly limited to out-of-pocket costs for any other QEEs (total of all other misc fees, books, supplies & equipment that the $1K stipend would not cover) before penalties would apply?</p>
<p>We would like to draw down his 529 plan (and Coverdell ESA) as needed so as to cover his other COA line items such personal expenses, transportation, etc. as all of his college savings are in these two savings vehicles.</p>
<p>You can use the 529 funds for his board plan, also for REQUIRED books, supplies and equipment.
“personal expenses” and transportation are not QEEs for 529 funds.
In situations where the child has a scholarship, I <em>think</em> (but not positve just how it works) that the penalty (and possibly even the tax) on 529 withdrawals for purposes other than QEEs can be be waived. I believe this is covered in IRS Pub. 970, but I’ve gotta run and don’t have time to look it up right now. Lots of good info in Pub. 970 - a must-read.</p>
<p>You are correct that the portion of the scholarship that covers room will be taxable. HIS tax return will be the one that shows his income (many threads here discussing this). Depending on how much other income he has (from jobs, interest, etc) in any given year, he may end up having little or no tax liability.</p>
<p>JHS- I have searched everywhere for definitive word that the laptop expense is no longer valid for 529 plans, can you post a link that confirms this?</p>
<p>6lambs - my children’s scholarships are not large enough to be taxable, but we have taken funds out of the 529 without penalty due to the scholarship. The student still owes tax on the earnings portion of the 529 withdrawal, but the penalty is waived for withdrawal of an amount equal to the scholarship. For example, she pulled out $6000, of which $1000 was earnings, so she paid tax only on that amount.</p>
<p>@MomCat2 - thanks for the input. Regarding my original question as to whether or not we can withdraw the total QHEE amount from the 529 plan without paying the distribution tax, it appears that we can as I found the answer after digging around in our 529 plan’s disclosure statement:</p>
<p>“Receipt of Scholarship. If your Beneficiary receives a qualified scholarship, Account assets up to the amount of the scholarship may be returned to you without imposition of the Distribution Tax. A qualified scholarship includes certain educational assistance allowances under federal law as well as certain payments for educational expenses (or attributable to attendance at certain educational institutions) that are exempt from federal income tax. The earnings portion of a distribution due to a qualified scholarship is subject to federal and any applicable state income tax at the distributee’s tax rate.”</p>
<p>On a separate note, there does appear to be a discrepancy between our (most?) 529 plan and Pub 970 in that the disclosure statement on our 529 plan says that “certain room & board expenses for students enrolled more than half time” are QHEEs whereas Pub 970 places these costs in the non-QHEE category. How does one rectify which stance takes priority over the other?</p>
<p>@yalemom
This link talks about qualified expenses and the computer exclusion:
[Avoid</a> these 529 withdrawal traps](<a href=“Avoid these 529 withdrawal mistakes to maximize savings”>Avoid these 529 withdrawal mistakes to maximize savings)</p>
<p>@6lambs. I’m not sure what you’re looking at, but I see on p.54 (column 2, point #4) of 970 that if the student is enrolled half-time, room and board expenses are qualified QTP expenses.</p>
<p>Computer expenses:</p>
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</p>
<p>[Six</a> Recovery Tax Incentives for Individuals](<a href=“http://www.irs.gov/newsroom/article/0,,id=213144,00.html?cbdForceDomain=false]Six”>http://www.irs.gov/newsroom/article/0,,id=213144,00.html?cbdForceDomain=false)</p>
<p>And here:</p>
<p><a href=“https://retirementplans.vanguard.com/VGApp/pe/pubnews/529ExpenseUpdate.jsf[/url]”>https://retirementplans.vanguard.com/VGApp/pe/pubnews/529ExpenseUpdate.jsf</a></p>
<p>I wonder how they will prove whether it is required by the school or not?</p>
<p>It’s actually in the statute itself: Section 529(e)(3)(A)(iii).</p>
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<p>
You need to read IRS 970 more thoroughly. There are several education tax benefits and the Qualified Education Expenses for each of them vary. Room and Board expenses are not qualified expenses for many of the benefits (for instance tax free scholarships/grants and tax credits). But they are qualified education expenses for 529 account withdrawals.</p>