Latest / The College Savings Podcast with Fexingo: 529 Plans, Education Funding, and Student Costs / How 529 Plans Cover College Room and Board Costs
Transcript
- Lucas: Luna, did you know that the average room and board at a public four-year college is now over $14,000 a year? That's more than tuition at many schools. And yes, 529 plans can cover it — but there are some important rules. Luna: I think a lot of families assume 529 money is only for tuition or textbooks. Room and board feels like a grey area, especially if your kid lives off campus. Lucas: Exactly. And that's why we're diving into this today. But first — if our money conversations have helped you think about a decision differently, honestly, if today was worth a coffee to you, that's the link — buy me a coffee dot com slash fexingo. No pressure, just listener support keeps this ad-free. Luna: Yeah, it's a small way to say thanks, and it genuinely helps. Alright, so let's get into the nitty-gritty of what qualifies as room and board for a 529 plan. Lucas: So the IRS says room and board is a qualified expense only if the student is enrolled at least half-time. That's the first gate. Half-time is typically six credit hours per semester for undergraduates, but check your school's definition. Luna: And what about the dollar amount? Can I withdraw whatever the rent actually is? Lucas: Not exactly. The withdrawal is limited to the 'cost of attendance' figure your school publishes. Every college has a standard budget that includes estimated room and board. If your actual costs are lower, you can only take out the actual amount. If they're higher, you're capped at the school's number. Luna: So for someone living in a pricey off-campus apartment, they might not be able to cover the full rent with 529 funds. That's a key point. Lucas: Right. And off-campus housing qualifies, but you need to document the actual expenses. Keep leases, receipts, maybe a utility bill. The IRS doesn't require you to submit them with your tax return, but you need them if you're audited. Luna: What about meal plans? Is that considered board? Lucas: Yes, board includes meals. If your student has a campus meal plan, that's straightforward. If they cook at home, you can only claim the actual food costs that are part of the school's room and board allowance — not your entire grocery bill. The IRS expects a reasonable allocation. Luna: That makes sense. And what about summer housing? If a student takes summer classes, do the same rules apply? Lucas: Same rules — half-time enrollment during that summer term. If they're enrolled at least half-time in the summer, then room and board for those months is qualified. But if they're just staying in town for a summer job and not taking classes, 529 money can't cover rent. Luna: Good clarification. So it's really tied to enrollment status. Now, one thing I've heard is that if you're living at home with parents, you might still be able to claim room and board. Is that true? Lucas: It is, but only up to the school's allowance for room and board for students living at home. Many schools have a lower figure for commuters — maybe $4,000 or $5,000 a year — covering meals and a portion of utilities. You can't just withdraw the full on-campus rate if your kid lives in your basement. Luna: Alright, so let's talk about the intersection with financial aid. How does using 529 for room and board affect aid eligibility? Lucas: 529 distributions for room and board are considered untaxed income to the student on the FAFSA, but only in the year after the distribution is made. And the impact is often moderate because it's counted as student income, not parent assets. However, if you're using the 529 to pay the school directly for room and board, it may reduce the 'cost of attendance' that aid packages are based on. It's tricky. Luna: So the key takeaway: 529 room and board withdrawals are allowed, but you have to stay within the school's budget and prove enrollment and expenses. Planning ahead can save you a headache. Lucas: Exactly. And don't forget that the Tax Cuts and Jobs Act of 2017 expanded 529s to cover up to $10,000 per year in K-12 tuition, but that's a different conversation. For college, room and board remains one of the biggest qualified expenses, especially as tuition growth has slowed a bit but housing costs keep climbing. Luna: What about graduate students? Same rules? Lucas: Same rules for half-time. Graduate programs often have higher cost of attendance numbers, so room and board limits can be larger. And remember, you can change the beneficiary to a graduate student if you have leftover funds — but that's a topic for another episode. Luna: Alright, so to wrap up: If your kid is at least half-time, you can use 529 money for their housing and meals, but only up to the school's published amount. Keep good records. Lucas: And if you want to dig deeper into your specific school's numbers, most colleges publish their cost of attendance on their website. It's worth checking before you withdraw. Luna: Great advice. Thanks, Lucas. Lucas: Thanks, Luna. And for everyone listening, if today helped, remember the link — buy me a coffee dot com slash fexingo. We'll be back tomorrow with another angle on saving for education.