Can 529 plan funds pay for a college student’s off-campus room and board?

Can a college student living off-campus pay for it with qualified 529 plan distributions since the room and board payments aren’t for on-campus housing?

January 29, 2020

Q: Is the cost of off-campus room and board a qualified expense for 529 distributions?

My client has been using 529 plan distributions to pay for part of his daughter’s college education costs, including room and board. For the first two years she stayed in the dormitory. In the fall of 2019 (the first semester of her junior year), she moved to a nearby apartment with several friends. The apartment building is not on campus and probably not approved school housing. Is the cost of off-campus housing a qualified expense for 529 distributions?

A: Yes, the cost of off-campus room and board may be a qualified education expense for 529 plans if certain criteria are met.

A student does not have live on campus or in college-approved housing for room and board to qualify as an education expense. Room and board costs may be treated as qualified education expenses for 529 plan distribution purposes if the student is enrolled at least half-time by the standards of the school.

Qualified room and board expenses may be no more than the greater of:

  • The allowance for room and board for the academic period and living arrangement for the student, or
  • The actual amount charged if the student lives in school-owned or operated housing.

The allowance for room and board is determined by the school and included in the cost of attendance for federal financial aid purposes.

Since your client’s daughter does not live in school housing, your client may have to contact the school about the room and board allowance if he doesn’t have that information available. If the 529 withdrawal was more than the school’s room and board allowance, the distribution is partly taxable unless the funds can be applied toward another qualified education expense.

 

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