Using a 529 for Off-Campus Living Expenses
Using 529 plans for off-campus living expenses can be tricky. While 529 funds can be used for room and board, there are strict guidelines to ensure compliance with IRS rules. Misuse of funds, even unintentionally, may result in income tax and penalties on non-qualified withdrawals. This article explores key considerations when using 529 funds for off-campus living and other common but questionable expenses.
Room and Board for Off-Campus Living
If the student lives off-campus, room and board are considered qualified expenses up to the school’s official cost of attendance (COA) for housing and meals. The COA acts as the upper limit on what you can claim as eligible, whether the student lives in a dorm or an apartment.
Tips for Compliance
- Obtain the COA Documentation: Request the room and board allowance from the school’s financial aid office. This will provide a clear benchmark to ensure off-campus housing expenses fall within allowable limits.
- Track Your Expenses: Keep all receipts, lease agreements, and bills for rent and other housing costs. This will help document the expenses if the IRS requests proof.
- Avoid Overestimating Living Costs: If your off-campus expenses exceed the COA, the excess will be considered a non-qualified withdrawal and subject to income taxes and penalties.
Example Scenario
If the school’s COA for off-campus housing is $12,000 per academic year and the student’s apartment rent totals $15,000, only $12,000 can be paid with 529 funds. The remaining $3,000 will need to come from other resources.