Latest / The College Savings Podcast with Fexingo: 529 Plans, Education Funding, and Student Costs / How 529 Plans Can Cover Your Childs Off-Campus Internet and Phone Bills
Transcript
- Lucas: So, we've talked a lot on this show about the big-ticket 529 plan expenses — tuition, housing, meal plans. But there's a smaller, recurring cost that a lot of parents and students don't realize can be covered: the monthly internet and phone bill for a student living off-campus. Luna: That's one I feel like a lot of people miss. I know when I was in college, my parents paid my cell phone bill, and it never occurred to them it might be a qualified expense. Lucas: Exactly. And the IRS rules are actually pretty clear on this, though they're not always intuitive. The key is that these utilities fall under room and board expenses, which are qualified if the student is enrolled at least half-time. But there's a catch: the total amount you can withdraw for room and board is limited to the school's official 'cost of attendance' budget for that category. Luna: Right, so it's not unlimited. The school sets a cap, and you can't just use your 529 to pay for any rent or utilities beyond that number. Lucas: Exactly. Most schools publish a standard room and board allowance for off-campus students. At the University of Texas at Austin, for example, the off-campus room and board allowance for the 2025-2026 academic year is around $16,500. That's meant to cover rent, utilities — including internet — and food. Luna: So if my daughter is paying $1,200 a month in rent, and her internet is $70, and her phone is $50, as long as the total for the year doesn't exceed $16,500, we're good? Lucas: That's the idea. But there's a nuance: the phone bill has to be for a single line used by the student. You can't cover the whole family plan. And internet service qualifies only if it's billed to the student at their off-campus address. So if you're paying the bill directly from the 529, the student needs to be the account holder. Luna: Right, that makes sense. You can't just pay your own home internet bill and call it a qualified expense. It has to be the student's residence. Lucas: And one more important point: streaming services like Netflix or Spotify don't count. The IRS specifically allows 'telephone service' and 'internet access,' not entertainment subscriptions. So keep your receipts clean. Luna: That's a good reminder. So if we're helping our listeners plan, what's the best way to actually use the 529 for these bills? Do you pay the provider directly, or reimburse yourself? Lucas: You can do either. Most people prefer to pay the bills out of pocket and then take a reimbursement from the 529 plan. The key is to keep documentation: the bill showing the student's name and address, proof of payment, and a record that the student was enrolled at least half-time during that period. That's your audit trail. Luna: And with the cost of attendance cap, it's smart to track the total room and board expenses you're claiming. You don't want to accidentally exceed the school's allowance. Lucas: Right. If you do, the excess is considered a non-qualified withdrawal, and you'll owe income tax plus a 10% penalty on the earnings portion. So it's worth being methodical. Luna: That's a big 'ouch'. Let's talk about a concrete example. Say a student at UT Austin has an off-campus apartment with rent of $1,000 a month, internet $70, phone $50, and groceries $300. That's $1,420 a month, or about $17,040 for a 12-month year. That's already above the $16,500 cap. Lucas: Yeah, that's a common scenario. So you'd need to decide which expenses to claim from the 529. You might skip the phone bill one month or only claim a portion of the rent. The important thing is that the total claimed doesn't exceed the school's allowance. And remember, you can only claim room and board for months the student is enrolled — typically nine months for a traditional academic year, though summer terms can be included if the student is enrolled then. Luna: So let's say the student is enrolled for the fall and spring semesters, about nine months. Then the maximum you could claim is 9/12 of $16,500, which is $12,375. That changes the math. Lucas: Exactly. Most schools calculate the room and board allowance on a nine-month basis unless the student is enrolled year-round. So you'd want to check your school's specific cost of attendance breakdown. It's usually available on the financial aid website. Luna: It's also worth noting that students living in on-campus dorms have a different allowance — usually higher because it includes a meal plan. But for off-campus, it's typically lower and doesn't include a meal plan component. Lucas: Right. And if the student is living at home with parents, the room and board allowance is even lower — often just a few thousand dollars. So the off-campus route actually gives you more flexibility with the 529. Luna: Let's circle back to the phone and internet specifically. Is there a limit on how much you can claim per month for those? Can I claim a $200 phone bill if that's what the plan costs? Lucas: There's no specific dollar limit from the IRS, but it has to be 'reasonable.' A $200 phone bill for a single line would likely raise eyebrows. As long as it's a standard plan — data, talk, text — you're fine. But if it includes an expensive device payment or insurance, that might not qualify. The general rule is that the expense must be required for the student's education. A basic phone and internet connection are considered necessary today. Luna: So the key is to keep it simple: a single line, basic internet, and don't try to bundle in your family's cell phone plan or a premium cable package. Lucas: Exactly. And if you're ever unsure, you can check with your 529 plan's customer service or a tax advisor. Most plans have guidelines on what they consider qualified. Luna: One last thing: what about security deposits for utilities? If a student pays a deposit for internet or phone service, can that come from a 529? Lucas: That's a gray area. The IRS hasn't explicitly addressed deposits. My reading is that a deposit is a refundable payment, not a true expense, so it probably doesn't qualify. I'd avoid claiming deposits. Stick to the monthly service charges. Luna: Smart. So to sum up: off-campus internet and phone bills can be paid from a 529, but they count against the school's room and board cap, the student must be at least half-time, and the bills must be in the student's name at their off-campus address. Lucas: That's it. And it's a great way to make those everyday expenses tax-free. Over four years, that could be a few thousand dollars in tax savings. Luna: Yeah, and every bit helps. So if you're a parent paying for your student's phone and internet anyway, you might as well use the 529. Just keep those records. Lucas: Absolutely. And if our money conversations have helped you think about a decision differently — like this one — we'd be grateful if you considered supporting the show. We keep it ad-free, and listener support is what makes that possible. You can find us at buy me a coffee dot com slash fexingo. No pressure, just if the show adds value for you. Luna: Yeah, every little bit helps us keep the lights on and the episodes coming. Now, back to the topic — one question we get a lot is whether you can claim internet and phone during summer months if the student is taking classes. Lucas: Great question. Yes, if the student is enrolled at least half-time in summer courses, you can claim those months too. That's a big one because many students take summer classes online, and internet becomes essential. Luna: So summer internet can be covered. That's useful for students doing internships or research over the summer too, as long as they're enrolled. Lucas: Right. And don't forget that the 529 can also cover the cost of a computer and peripheral equipment, which we covered in episode 111. Combine that with internet, and you've got a fully tax-free home office setup for your student. Luna: That's a powerful combination. So as we head into the fall semester, it's a good time to review your 529 strategy and make sure you're capturing all these smaller expenses. They add up. Lucas: They really do. And with the cost of college continuing to rise, optimizing every dollar in your 529 is more important than ever. Thanks for joining us, and we'll catch you next time on The College Savings Podcast.