What Are the 529 Room and Board Limits Set by the IRS?

For families planning college expenses, understanding 529 plans is crucial. These tax-advantaged savings accounts can significantly ease the financial burden of higher education by covering qualified expenses, including room and board.

IRS Criteria for Room and Board

The IRS provides clear guidelines on what qualifies as room and board expenses under a 529 plan. These expenses are tax-free if the student is enrolled at least half-time at an eligible educational institution. The limit for room and board expenses is determined by the greater of two amounts: the actual cost for institution-owned housing or the room and board allowance in the institution’s cost of attendance. For dormitory residents, the institution’s charges set the maximum. For off-campus students, the published cost of attendance serves as the cap.

Determining the Allowable Housing Costs

Allowable housing costs under a 529 plan are based on the institution’s cost of attendance, which includes estimated room and board expenses. This figure, available through the financial aid office, helps families understand the limits for off-campus housing. Comparing local rental rates and utilities to the institution’s allowance ensures costs stay within acceptable limits. Exceeding these limits can result in taxable withdrawals.

Documentation and Receipts for Compliance

Accurate documentation is critical when using 529 funds for housing expenses. Families should retain lease agreements or housing contracts for off-campus living, and billing statements for institution-owned housing. Receipts for rent, utilities, and meal plans should be organized and stored securely. These records provide proof of payment and are essential if the IRS requests verification. Digital tools can streamline this process and ensure records are easily accessible.

Off-Campus Housing and Meal Plans

Using 529 funds for off-campus housing and meal plans requires planning. Off-campus living introduces variability in costs, so families should research local housing markets to ensure expenses align with the institution’s cost of attendance. Students living off-campus may choose grocery purchases over university meal plans. While 529 funds can cover food expenses, they must remain within the university’s budgeted allowance for meals. Detailed records of grocery receipts and dining bills are necessary to substantiate these expenses.

Cost-of-Attendance from the Institution

The cost-of-attendance (COA) figure provided by the educational institution determines the limits for room and board expenses under a 529 plan. This figure reflects the average expenses a student might incur and sets the maximum allowable amount for tax-free withdrawals related to housing and meals. For example, if the institution allocates $12,000 annually for room and board, a student living off-campus cannot withdraw more than this amount, even if actual expenses are higher. Families should budget carefully to avoid taxable distributions.

COA figures can vary depending on a student’s enrollment status or living arrangements. Students living with family may have a reduced COA allocation for room and board compared to those living independently. Families should work with the financial aid office to obtain accurate COA figures specific to their situation. This ensures 529 withdrawals comply with institutional guidelines and minimizes the risk of penalties or unexpected tax liabilities.