If a 529 plan distribution is used to pay for room and board, it is a tax-free qualified distribution in certain circumstances and a taxable non-qualified distribution in other circumstances. The student must be enrolled as a regular student on at least a half-time basis.
[See also How to Use Your 529 Plan to Pay for Room and Board.]
Criteria for Room and Board as a Qualified Distribution
You can use a 529 plan distribution to pay for a student’s room and board expenses if the student is enrolled at least half-time.
The room and board expenses must be incurred while the student is enrolled at a college or university that is eligible for Title IV federal student aid.
The student must be seeking a degree, certificate or other recognized credential. Continuing education classes do not count. (You can, however, use 529 plan money to pay for the cost of continuing education, just not for room and board.)
The student must not be enrolled simultaneously in an elementary or secondary school, so dual enrollment programs do not count.
Caps on the Cost of Room and Board
The room and board costs must not exceed the greater of
- The room and board allowance listed in the college’s official cost of attendance, or
- The actual invoiced cost of room and board if the student is living in housing that is owned or operated by the college
Most colleges have three student budget allowances for room and board. One allowance is for students without dependents who live at home with their parents, one is for students without dependents who live in housing that is owned or operated by the college, and one is for all other students, such as students who live off campus.
Thus, if the student is living off-campus, the cost of room and board must not exceed the allowance for room and board in the college’s student budget for students living off campus.
The average room and board for students who live on campus is about $10,000 to $12,000. The average room and board for students who live off campus is slightly lower.
If the cost of room and board exceeds the student budget’s allowance for room and board, any excess above the allowance will be considered a non-qualified distribution if 529 plan money is used to pay for it.