Can 529 plan pay for off-campus housing?

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Q.If my college son moves off campus to an apartment, can we use 529 plan funds to pay the room and board?
— Dad

A. It will be a big step for your son to move off-campus.

If you’re not careful, it could also be a big mistake — at least in terms of using a 529 plan to pay for it all.

Rent and food may be qualified expenses for a tax-free withdrawal from the 529 account, but you have to be aware of the amounts and take care with your recordkeeping, said Peter McKenna, a certified financial planner with Highland Financial in Riverdale.

For rent and food to be considered qualified education expenses eligible for a tax-free withdrawal from a 529 plan, your student must be enrolled at least half-time in a degree program.

McKenna said the first step should be to look at the school’s website to see what its on-campus room and board costs are for the academic year.

“Living off campus can be a less expensive alternative for many, so you can consider the school’s costs as an upper limit on what the IRS would consider reasonable,” McKenna said. “With the figures from the school, calculate what the rent, utilities and food are anticipated to cost for the year and compare to the school’s room and board costs.”

Funds that transfer from the 529 plan directly to the school are the easiest to track, so consider using those funds to pay for any on-campus meal plan your son decides to keep, McKenna said.

He said assuming the rent is below the school’s costs, you can pay the rent and reimburse yourself from the 529 account.

“Be mindful of the difference between academic years and calendar years for taxes as the withdrawals from the 529 are supposed to be used in the calendar year of the withdrawal,” he said. “You may need to take the fall semester rent out in one tax year and the spring semester out in the following tax year.”

Food expenses that are not paid directly to the school are acceptable but will require your son to keep records of what was spent and where, McKenna said.

“My daughter is currently living off-campus and she charges her groceries on a shared credit card and I categorize them in my budget planning as college food so that I can track it separately,” he said.

This raises a bigger issue on managing resources and tax implications over a four-year college experience, McKenna said.

“Many of us don’t have 100 percent of the anticipated expenses saved in 529 accounts when they start college,” he said. “That means expenses are going to be paid from a variety of sources, such as 529 accounts, Roth IRAs, savings accounts, income and others.”

By taking some time to consider how the expenses will change over time, such as moving off-campus, you can try and match your anticipated outflows with the appropriate source of funding while thinking of the tax implications, McKenna said.

“In my daughter’s case, I spent enough non-529 money in year one to take advantage of tax deductible education expenses and used 529 accounts to pay her school directly for the remainder,” he said. “In year two when she moved off campus, I paid tuition directly from the 529 and paid rent and food from income.”

This year, McKenna said, he has two in college so he’s paying as much as possible directly to the schools from the 529s, paying rent and reimbursing himself from the 529 account and funding food out of income.

“While this is going to differ for each family, the way I am managing it for us makes record-keeping easy and makes sure I utilize the tax deductible expenses and qualified tax-free 529 withdrawals in a reasonable way,” McKenna said.

Good luck to you and your son!

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This post was first published in February 2017. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.