By Mary Anne Busse
Managing Director, Great Disclosure LLC
April 15, 2013
In an earlier post, we talked generally about uses for your 529 Plan account. In this post, we’ll break down what is included in room and board expenses. First, a refresher:
If you use the funds in your 529 Plan account for Qualified Higher Education Expenses (as defined in Section 529 of the Internal Revenue Code), you will not be taxed on any of the income earned on your account. According to Section 529, Qualified Higher Education Expenses include, among other things, expenses for room and board incurred by students who are enrolled at least half-time.
Room and Board
I like working with examples, so let’s look at a freshman (we’ll call her Sally) attending an in-state university starting in the fall of 2013. For federal financial aid purposes, the university has set room and board costs at $9500 for the 2013-1014 academic year. If Sally lives on campus, the question of what is included in room and board is fairly easy. It will be whatever the university charges Sally for housing and meals even if it is more than the $9500 set by the university for financial aid purposes.
If, however, Sally lives off campus in an apartment or shares a house with other students, you will calculate room and board a little differently. For off-campus purposes, you will be able to include the full amount of room and board paid by Sally if it is no more than the $9500 allowance for room and board set by the university. If Sally pays $600/month to rent her portion of an off-campus apartment, assuming a 9 month school year, her housing costs would total $5400. That leaves $4100 for groceries or a little over $450 per month.
Keep in mind, however, that you can only claim the actual amount spent. Giving your student a debit card with only the budgeted amount each month should save you from overspending, give you back up receipts if your student loses some and should help make the recordkeeping just a bit easier. Also, it may be wise to pay rent directly to the landlord as opposed to another student. This may not be so difficult if you are writing the rent check yourself. It is VERY important that you keep all receipts for rent paid, groceries, etc. It will be your responsibility to substantiate room and board expenses.
For more detail on room and board, see IRS Publication 970. For comparative information on the 529 Plans offered across the country, check out our comparison tool.
About the Author:
Mary Anne Busse is the Managing Director of Great Disclosure LLC, a full service consulting firm dedicated to the 529 Plan marketplace. Great Disclosure represents 529 Plan administrators on all aspects of 529 Plan administration, marketing, and operations.