My son lived on campus for 2 years and is now living at home. I understand we can charge him room and board and reimburse ourselves from the 529 account, up to the limit for room and board expenses set by his school. What is a reasonable amount to charge, what type of receipts do you need and do we then have to declare this room and board money as taxable income? Has anyone ever done this before? Thank you
A reasonable fee would be no more than the cost of room and board allowed by the college in the COA . However, I wouldn’t do this because it may trigger a tax audit and yes, you may be responsible for declaring room and board as income on your taxes, just as you would if you rented it out. Is it worth it? Do you have that much money in your 529 that you must use it for this? Any other children to pass it to?
Thanks. We will land up with about $7,000 more in 529 than we can use. No other children/relatives to pass it to. I read other places that if its a nominal charge (i.e. $200 a month for room and board) around $1,000 a year, you would not need to claim as income as it is just family members passing money around, but I was curious if anyone has actually done this.
The maximum is the room and board allowance the school sets in the COA for the particular living arrangement of the student. Schools have different allowances in the COA for living on campus, living off campus and living at home with parents. So it would be the latter limit. You may have to contact the school to find out what that allowance is.
Page 58:
Thanks. His schools COA for room and board is around $12,000 a year. We would charge much less once we look at grocery, utilities, etc expenses. I guess I was just wondering what might be a ballpark reasonable amount that people may have charged their students, and if they declared in as earned income
Ideas:
You could charge $7k - there’d be no net income if you spend that on food for him over the remaining 2 years of school.
Has he ever considered study abroad? A summer study abroad could be around $7k.
Might you have any grandchildren by the time this son is age 30? You don’t have to empty out the account until he is 30.
Is he interested in grad school?
Thanks for the ideas 
! He may do grad school, but probably not. He already did a study abroad, and no grandchildren possibilities 
Do you know if I charge him the 7k, do I have to do receipts between us?
This is not true. You may be confusing a 529 plan with a Coverdell, which requires the account to be established before the beneficiary turns 18 and the balance to be spent by age 30. A 529 plan, however, can be opened for a beneficiary of any age, and the funds can be distributed regardless of how old the beneficiary is when he or she attends college or graduate school.
fyi, COA for on campus room and board will be very different from COA for living at home. Often it is only about 1/4 as much. Google the COA page for his college and you will see.
Thanks for pointing that out. I double checked and your are right. The COA for living at home at his school is like $3,200
How does he get to school now, would buying a car fall under transportation expenses and would that be a qualifying expense for using 529 funds?
I don’t think transportation is covered under a 529. I’ve always been surprised that room and board it, as it is not a QEE for other tax purposes.
Madison, why is there no net income if she charges room and board? If she rented a room to Sally Student and collected room and board of $10k per year, the amount that exceeds expenses would be income. Just because she’s charging it to her own child, why wouldn’t it be the same? She’s calling it an arm’s length transaction (actually charging rent) to claim the 529 money, why wouldn’t it in return be income?
He has been using my car, but has to get his own now. That would be perfect if we could use the 529 for transportation, but everything I see says transportation is not a qualified expense. If anyone knows otherwise, please let me know!
This article indicates it could be considered a gift both ways, whether the parent supplies room and board for free or the child gives the parents money to help out with expenses. The parents don’t appear to be in the “rental business” per IRS rules and aren’t renting for profit.
The current threshold is $14k for gift tax reporting.
No, transportation expenses aren’t QEE for 529 distributions.
^true, except this is not just $, it is a 529 distribution. Bc it has been building tax free, it must be taxed.
I was just replying both to twoinanddone’s question in post #11 and the OP’s question about the reporting of the rent as taxable income.
As for the 529 distribution, if room and board expenses are being incurred, I don’t think it matters whether it’s the owner or beneficiary of the 529 who is paying the expenses up to the school’s “living at home” allowance for COA. In the rental situation(or giving money for expenses), I think both the student and parents would be considered paying part of the “living at home” room and board expense. You don’t have to pay expenses directly from the 529, you can reimburse yourself later from the 529 as long as it’s in the same tax year as the expenses are paid.
Post #11: if his food expense over the remaining two years of college = what he is charged there is no net income.
Yes, couldn’t the parents simply add up the son’s share of housing and food costs for the year and then reimburse themselves from the 529 account at the end of year?
As long as it’s not over the $3,200 number that the college publishes for room and board if commuting?
Then there would be no rent payment involved.
I think I will outline his food expenses, and our housing expenses (real estate tax, utilities, any new appliances purchased while he was living at home, etc) and ‘charge’ him a percentage. We don’t have a motgage payment. Maybe 30% we will charge, and since this will not render any profit therefore, not net income, I am no longer worried about any taxable income. I am thinking this 30% will be close to the $3,200 number in the COA for living at home. We should be able to use up the remaining 529 funds over these last 2 years.