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Paying for room and board with a 529 plan

If the student is living on-campus, their qualified room and board costs will be equal to the actual invoice amount they are charged for housing owned or operated by the college. This typically includes housing costs and a meal plan.

But for students residing in apartments or other off-campus housing, qualified room and board costs must be less than or equal to what is included in the college’s cost of attendance (COA) allowance for room and board for the period. The COA estimates a student’s total cost of college in a given year, which includes tuition, fees, room and board, transportation, books, supplies and equipment and other expenses, and is used to determine need-based financial aid eligibility. Keep in mind that not all items included in the college’s COA, such as transportation, are considered qualified expenses for 529 plan purposes.

Students can obtain their school’s room and board allowance for residing off-campus from the college’s website or the financial aid department. The college will typically provide an allowance for those who reside in apartments as well as those who live at home with their parents during the school year. While living off-campus, add up the receipts from any rent, utilities, groceries or other housing expenses each year until you reach the maximum amount for a tax-free 529 plan withdrawal.

When adding up your total 529 plan qualifying expenses for the year (including tuition, fees etc.), don’t forget to subtract any costs used to generate the American Opportunity Tax Credit or Lifetime Learning Tax Credit. Double-dipping with other education tax benefits could trigger a non-qualified withdrawal. Also, be sure to take the distribution in the same year that the qualified expense was paid. 529 plans typically let you distribute funds to the account owner, the beneficiary or the school. Some 529 plans will let you make a payment directly to an off-campus landlord.

You cannot use a 529 plan distribution to pay the mortgage on a house or condo in which the student lives, but parents may be able to charge the student rent on this home. It is not recommended, however.

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Saving For College is an unbiased, independent resource for parents and financial professionals, providing them with information and tools to understand the benefits of 529 college savings plans and how to meet the challenge of increasing college costs.