Using 529 Plans for Off-Campus Housing: What You Need to Know: 1 Minute to Understand the Role of 529 Plans for Housing Costs

529 plans offer a flexible, tax-advantaged way for families to save for future education expenses. Many families know these accounts can cover tuition, fees, and required books, but what about off-campus housing expenses? Navigating the use of 529 plan funds for room and board—especially when students aren’t living in college dorms—requires careful attention to IRS rules and school cost of attendance guidelines. Here’s what you need to know to avoid surprises and maximize your education savings.

Tips 1:

Eligible 529 plan withdrawals for housing must not exceed the allowance for room and board specified by the student’s college in its cost of attendance figure—sometimes referred to as the “student budget.” This number typically appears on the school’s financial aid website or can be provided by the financial aid office. For off-campus housing, qualified expenses may include rent, utilities, and food, but receipts and documentation are crucial in case of an audit.

Design Insight:

As an interior designer, I always encourage students living off-campus to consider how living arrangements impact well-being and academic performance. Using 529 funds wisely can allow students the flexibility to create comfortable, productive environments while staying within budget limits. Tools like a home designer can assist in visualizing and organizing an effective living space that supports both study and relaxation—a critical balance for academic life.

FAQ

Q: Can I use 529 plan funds for off-campus apartment rent?

A: Yes, but only up to the school’s published cost of attendance allowance for room and board. Amounts greater than this allowance are considered non-qualified and may be subject to taxes and penalties.

Q: Are utility bills and groceries considered qualified expenses?

A: Yes, reasonable utility costs and groceries bought for at-home meals generally qualify, provided they fall within the institution’s cost of attendance figure.

Q: Does living with roommates affect qualification for 529 withdrawals?

A: The IRS allows cost-sharing, but each student can only withdraw up to the room and board allowance for their own expenses, not their share of the total rent and bills if that amount is above the institution’s allowance.

Q: What documentation do I need for a 529 withdrawal for housing?

A: Keep all leases, receipts for rent and utilities, and store receipts for groceries. These may be required to prove compliance if questioned by the IRS.

Q: What happens if I withdraw more than the qualified amount?

A: Excess withdrawals used for non-qualified expenses may be subject to income tax and a 10% penalty on the earnings portion of the distribution.