I have been told that my full-time student D’s off-campus room and board can be paid from our 529 plan as long as the total amount does not exceed the cost of attendance provided from her school and that any withdrawals are used to pay for expenses within that calendar year.
My question is how have others done this? Did you withdraw money for rent and food by the semester?
Thanks.
I think this depends on which particular 529 plan your daughter has! I have a 529 from College of Illinois, and I am at an out-of-state school living off campus. Because I’m OOS, I get my 529 money paid by multiplying the credit hours I’m taking by the predetermined rate. As far as I understand, after College of Illinois assesses the amount of hours I’m taking, they will send the money to my school (all of it). As it is, most of my tuition is paid by scholarships–the 529 money covers all other open charges on my university bill, and the extra amount gets refunded to me via check (or, because I set it up on my university’s billing page, through direct deposit). That’s just how mine is, though-- I would recommend contacting your 529 provider specifically for more detailed information about your personal situation.
Yes food and off campus housing can be covered under 529 withdrawals. The IRS even itemizes what items can be covered and what’s not eligible (such as cleaning supplies or personal hair care). Would your kiddo be audited and asked to produce receipts? Unlikely.
Do you have a link to the IRS itemized items that are qualified expenses for 529 room and board?
Ugh. The IRS doc is very unhelpful: https://www.irs.gov/pub/irs-pdf/p970.pdf I’ve not found a comprehensive list.
I went to my broker’s page https://www.fidelity.com/viewpoints/personal-finance/college-529-spending
“It’s important to keep receipts and make sure that essentials are purchased separately from nonessential items. Be careful to avoid expenses that don’t qualify—for example, equipment used primarily for amusement or entertainment doesn’t qualify. These and other lifestyle expenses, like insurance, sports expenses, health club dues, and travel and transportation costs, will have to be funded through other resources. If you’re not sure whether a plan covers a particular college expense, the college’s financial aid office should be able to help.”
Googling “qualified expenses 529” isn’t helpful either. Grrrr.
529’s are called “Qualified Tuition Plans” in IRS Publication 970. The things you can spend it on for a full-time student are at the top of the second column, page 59. (Then it goes into a bunch of stuff for students attending less than half-time, does that apply here?)
The amount you can deduct for off-campus housing is limited to:
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.
If you don’t have it, you can look up the allowance amount on the college board big future website, just click on “Paying” in the right-hand column to see the cost of attendance numbers.
To pick on an example, the allowance for Colorado State is 9603 for living off-campus, out of the home, and 2457 for living at home. You can deduct your actual expenses for room and board, up to that amount.
Like others said, it is unlikely you will be asked to provide receipts. Save some just in case, but don’t obsess over it.
I did monthly disbursements directly to my son’s bank account to use for rent and living expenses. I was careful to keep it below the college’s COA estimates… that was not hard to do.
If you have tuition covered by scholarship, consider paying for qualified fees and books with non 529 funds so that you may claim the AOTC (if income eligible). Even a partial AOTC is beneficial.
@mommdc – does your comment above mean that AOTC cannot be claimed if 529 funds are used to pay college expenses? (I realize there are income limits for AOTC.)
You cannot claim the AOTC for costs paid for with 529 funds, with scholarships, with grants. No double dipping.
Really?
I was very surprised the IRS allowed meals to be paid for with 529 funds. The IRS is the original "NO FREE LUNCH: Scrooge. Meals paid for with scholarships or grants are subject to tax.
This wasn’t an IRS decision… it’s how Congress wrote the law.
@CT1417, yes, if you pay for tuition with tax free scholarships or 529 (tax advantaged) funds, then you cannot claim the same qualified expenses for the AOTC.
For the purpose of AOTC and tax free treatment of scholarships and grants, qualified education expenses are tuition, fees and books.
For the purpose of 529 accounts, qualified education expenses also include computers and room and board (I think student has to be enrolled at least half time).
So families should coordinate for best benefit if they would qualify for AOTC.