When families think about college expenses, tuition is often the first thing that comes to mind. But for many students, room and board are the second-largest cost, and it adds up quickly. The good news is that 529 plans can help cover these expenses, including both on-campus housing and off-campus rent.
To qualify for tax-free withdrawals, the amount you take from your 529 plan for room and board can’t exceed the maximum amount allowed in the college’s cost of attendance (COA).
For on-campus housing, this typically means the full amount the school bills the student for housing and a meal plan. For off-campus housing, you’re limited to the room and board allowance listed in the school’s COA, even if your actual rent is higher.
Below, we break down how to use your 529 plan to pay for room and board and what you need to know to stay within the rules.
How Much Room and Board Can Cost
According to the College Board, the average room and board costs for the 2022-23 school year were approximately $12,310 for public four-year colleges (in-state or out-of-state) and $14,030 for private four-year colleges, representing a 3% increase from the previous year.
The majority of students accept some form of financial aid, which can include grants and student loans. However, the average aid package is only $15,480, which barely covers average room and board, not including tuition, other costs, and fees.
If costs continue to rise at an annual rate of 3%, total room and board over four years at public and private colleges may cost $84,000 and $96,000, respectively. Parents can save for future room and board costs with a tax-advantaged 529 plan.
Qualified 529 Plan Expenses
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.
You can include both on- and off-campus housing costs as qualified room and board expenses as long as you incur them during an academic period when the student is enrolled or accepted into a degree, certificate, or other program leading to a recognized educational 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.
You cannot use Prepaid tuition plans, including the Private College 529 Plan, to pay for room and board. This is because these plans typically cover only tuition and mandatory fees. 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 lives on campus, their qualified room and board costs will equal 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 educational institution, a college or university eligible for Title IV federal student aid, and the eligible expenses must be incurred during this enrollment period.
- 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
Using a 529 is straightforward 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 if 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 allow you to arrange for a check to be sent directly to your landlord.
Also, remember that a 529 plan allows you to use qualified expenses for off-campus housing on more than just rent. You can also pay for groceries and utilities, which are 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.
Paying for meal plans and food
You can use your 529 for room and board, including meal plans, when they are part of your school’s room and board fees. As with housing, you can typically use only up to the amount the school lists as the “cost of attendance” for room and board.
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.
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 withdrawals you can make to pay for rent, food, utilities, and other similar college 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 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, and the average 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. Non-qualified withdrawals are subject to tax as well as a 10% penalty, so it’s essential 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 plan’s beneficiary). However, you must ensure you understand the rules, what qualifies, and how much you can spend to 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 you use 529 plan funds 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.
