529 Room and Board: Can You Use It While Living at Home?
Explore how 529 plans can cover room and board costs, even when living at home, and learn about eligible expenses and necessary documentation.
A 529 plan is a savings vehicle designed to help families fund educational expenses. With rising higher education costs, understanding how to use these plans effectively is crucial. A common question is whether room and board expenses are covered when a student lives at home while attending college.
Allowed Housing Expenditures Under 529
The IRS allows 529 plan funds to cover room and board costs for students enrolled at least half-time, but specific conditions apply. The maximum tax-free withdrawal is the greater of the actual amount charged by the institution for room and board or the allowance for room and board included in the institution’s cost of attendance (COA) for federal financial aid.
The COA, determined by each educational institution, includes tuition, fees, and an estimate for room and board. This estimate serves as a guideline for students living off-campus or at home. For example, if a university’s COA includes a $10,000 allowance for room and board, a student living at home can withdraw up to this amount from their 529 plan, provided they meet the enrollment requirements.
Methods for Calculating Room and Board
To calculate eligible room and board expenses under a 529 plan, families should refer to the COA provided by the educational institution. This figure represents the maximum allowable withdrawal for housing expenses and is typically based on average on-campus living costs, which vary by institution and location.
Families should monitor updates to the COA, as changes can affect the amount eligible for withdrawal. The COA often reflects local living costs and institutional policies, so it’s important to confirm the specific figures for the student’s school.
Documentation for Home-Based Living Costs
Using 529 plan funds for students living at home requires detailed documentation of living costs to comply with IRS regulations. Families should maintain records of expenses tied to the student’s living costs, such as a portion of utility bills and grocery receipts.
Only expenses directly related to the student’s educational needs are eligible. For example, if a designated area of the home is used for the student, related costs can be documented as part of room and board. Accurate record-keeping ensures compliance with IRS rules and protects against potential audits.
Coordination with Scholarships or Grants
Scholarships and grants reduce the amount of education expenses that can be covered tax-free by a 529 plan. Any 529 withdrawal exceeding the adjusted qualified education expenses—after accounting for scholarships or grants—may incur income tax on the earnings portion and a 10% penalty.
To avoid penalties, families should subtract the total amount of scholarships and grants from the qualified education expenses to determine the eligible 529 withdrawal amount. Careful tracking of these figures ensures efficient and penalty-free use of 529 funds.