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Room and board costs make up a large portion of a student’s total college bill, second only to tuition. You can use a 529 plan to pay for room and board, but only if certain requirements are met. Room and board include the cost of housing and the cost of a meal plan.
Colleges typically have room and board budgets for students who live on campus in college-owned or operated housing, for students who pay rent to live off-campus in an apartment, and for students who live off campus with their parents or other relatives. Some colleges have a fourth category that includes students who live on a military base or who receive the basic allowance for housing (BAH), which includes room and covers board only. We cover how to use your plan to pay for room and board below.
Wondering how your 529 plan may impact financial aid? Use our Financial Aid Calculator to estimate the expected family contribution (EFC) and your financial need.
How Much Room and Board Can Cost
According to the College Board, average room and board costs for the 2020-21 school year were around $11,600 for public 4-year colleges (in-state or out-of-state) and $13,100 for private 4-year colleges, up about 1% from the previous year, respectively. In recent years, room and board costs have increased by about 3% per year. If costs continue to rise at an annual rate of 3%, total room and board at public 4-year colleges and private 4-year colleges may cost $75,000 and $90,000, respectively. Parents can save for future room and board costs with a tax-advantaged 529 plan.
Qualified 529 Plan Expenses
With a 529 college savings plan, investments grow tax-deferred and are not taxed when withdrawn to pay for qualified higher education expenses, including tuition, fees, textbooks, supplies and equipment required for enrollment, special needs services and, in some cases, room and board costs. You can use money in a 529 savings plan to make student loan payments. If funds are used for non-qualified purchases, the earnings portion of the distribution will incur ordinary income tax plus a 10% penalty.
For room and board expenses to be considered qualified, the student has to be enrolled in an eligible college program on at least a half-time basis. Qualified room and board costs can include both on- and off-campus housing costs, as long as they were incurred during an academic period during which the student is enrolled or accepted for enrollment in a degree or certificate program or another program leading to a recognized education credential.
Enrollment in a study abroad program counts, so long as it is approved for credit by the student’s home college or university. Rent incurred during the summer months is also considered qualified when the student is enrolled at least half-time.
Prepaid tuition plans, including the Private College 529 Plan, cannot be used to pay for room and board. Families using a prepaid tuition plan may consider opening a 529 college savings plan to save for room and board, books and supplies and other non-tuition costs not covered by prepaid tuition plans.
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.
Criteria for Expenses to Qualify as Room and Board
To qualify to use a 529 plan distribution to pay for room and board expenses, the student needs to be:
- Enrolled at least half-time
- Enrolled at an eligible institution, that is, a college or university that is eligible for Title IV federal student aid, and the expenses must be incurred during this period of enrollment
- Enrolled in a degree or certificate program, or seeking another recognized credential. This does not include continuing education.
- Not enrolled simultaneously in an elementary or secondary school (therefore students in dual enrollment programs are ineligible)
A parent 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.
Paying for On-Campus Housing
things are very simple when it comes to paying for on-campus housing. With most plans, you can opt for the 529 plan to send a check directly to your school for on-campus room and board. If you prefer, you can also pay for your room and board at your school and then reimburse yourself from your 529 plan. Meal plans are a qualified expense as long as they’re part of your room and board.
Paying for Off-Campus Housing
It is also possible to use a 529 plan for off-campus housing, up to a maximum of your school’s cost of attendance. When paying out of your 529 for off-campus housing, you’ll usually need to pay your expenses yourself, and then arrange for reimbursement. However, some plans can make it possible to arrange for a check to be sent directly to your landlord.
Also keep in mind that 529 plan qualified expenses for off-campus housing are not limited to rent. You can also pay for groceries and utilities, always up to the cap of the cost of attendance. Make sure you keep a record of all your purchases and keep receipts for everything you want to count as a 529 disbursement – this is essential for your tax return.
You can even use your 529 to pay for room and board when studying abroad. Learn more about paying for overseas studies.
How to Avoid Exceeding Expenses in Cost of Attendance
Although you can use a 529 for room and board, this isn’t limitless. There are 529 room and board limits on the total amount of disbursements you can make to pay for rent, food, utilities, and other similar expenses.
The room and board costs must not exceed the greater of:
- The room and board allowance is listed in the college’s official cost of attendance (COA), 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 are about $10,000 to $12,000. The average room and board for students who live off campus are 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. Non-qualified distributions are subject to tax as well as a 10% penalty, so it’s important to avoid going over the COA.
The Bottom Line
You can use your 529 plan to pay for room and board at college for yourself or your child (the beneficiary of the plan). You need to make sure you understand the rules, what qualifies, and how much you’re able to spend so that you can maximize the benefit.
Frequently Asked Questions (FAQs)
We’ve compiled a list of the most frequently asked questions regarding using your 529 plan to pay for room and board at college and answered each below.
Can 529 be used for dorm furniture?
Unfortunately, dorm furniture and room decorations are classified as personal expenses and are not qualified 529 expenses. Therefore, if you use your 529 plan funds to pay for dorm furniture, the disbursements will be subject to federal income tax, and you’ll be hit with a 10% penalty.
Are room and board qualified education expenses?
Yes, 529 funds can be used for room and board, whether you’re living on-campus or off-campus. Room and board is a qualified education expense under 529 plans up to your school’s cost of attendance.
Can 529 money be used for food?
You can use your 529 for room and board, and this includes meal plans when they are part of your school’s room and board fees. You can also pay for groceries if living off-campus, as long as the total amount spent doesn’t exceed the official cost of attendance.
