Using your 529 Plan to Pay for Room and Board

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Kathryn Flynn

By Kathryn Flynn

July 26, 2022

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 includes the cost of housing and the cost of a meal plan. Colleges typically have a 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. 

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.

Costs of room and board

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With a 529 college savings plan, investments grow tax-deferred and are not taxed when withdrawn to pay for qualified higher education expenses, including tuition, fees, textbooks, supplies and equipment required for enrollment, special needs services and,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.

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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.

But for students residing in apartments or other off-campus housing, qualified room and board costs must be less than or equal to what is included in the college’s cost of attendance (COA) allowance for room and board for the period. The COA estimates a student’s total cost of college in a given year, which includes tuition, fees, room and board, transportation, books, supplies and equipment and other expenses, and is used to determine need-based financial aid eligibility. Keep in mind that not all items included in the college’s COA, such as transportation, are considered qualified expenses for 529 plan purposes.

Students can obtain their school’s room and board allowance for residing off-campus from the college’s website or the financial aid department. The college will typically provide an allowance for those who reside in apartments as well as those who live at home with their parents during the school year. While living off-campus, add up the receipts from any rent, utilities, groceries or other housing expenses each year until you reach the maximum amount for a tax-free 529 plan withdrawal.

When adding up your total 529 plan qualifying expenses for the year (including tuition, fees etc.), don’t forget to subtract any costs used to generate the American Opportunity Tax Credit or Lifetime Learning Tax Credit. Double-dipping with other education tax benefits could trigger a non-qualified withdrawal. Also, be sure to take the distribution in the same year that the qualified expense was paid. 529 plans typically let you distribute funds to the account owner, the beneficiary or the school. Some 529 plans will let you make a payment directly to an off-campus landlord.

You 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. It is not recommended, however.

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