Latest / The College Savings Podcast with Fexingo: 529 Plans, Education Funding, and Student Costs / How 529 Plans Cover Your Childs Off-Campus Parking and Transportation
Transcript
- Lucas: So you just dropped your kid off at a campus apartment for junior year. They don't have a meal plan, they cook their own food, and they drive to campus three days a week. That parking pass costs $800 a semester. Can you pay for it with 529 money? The short answer is yes, but only under the right conditions. Luna: I bet a lot of parents assume parking is a personal expense, not an education one. Where does the IRS draw the line? Lucas: The key is that 529 plans cover room and board costs for students enrolled at least half-time. And 'room and board' isn't just dorm rent and a meal plan. The IRS says you can use the allowance for any housing and food cost, as long as it doesn't exceed the official cost of attendance published by the school. Luna: So transportation like parking or a bus pass would fall under that housing umbrella? Lucas: It's actually a little more nuanced. Transportation itself isn't listed as a separate qualified expense in the tax code. But when you're living off campus, getting to and from campus is part of the housing arrangement. The IRS allows 529 funds to be used for the actual costs of room and board, which can include utilities, internet, renter's insurance, and yes, commuting costs like parking permits and public transit passes, as long as those costs are included in the school's total cost of attendance budget. Luna: So the school basically sets a cap. I'm thinking of the University of Michigan — their off-campus room and board allowance for this academic year, 2025-2026, is about $14,000. If a student spends $1,200 on parking and a bus pass, that comes out of that allowance. Lucas: Exactly right. And that $14,000 figure is the ceiling. You can't take more than that out of the 529 for room and board in a given year, regardless of what you actually spend. But as long as your total qualified room and board expenses — including parking and transit — stay under that number, you're fine. Luna: What about gas money? If my kid drives to campus every day, can I reimburse myself for fuel costs from the 529? Lucas: That's a trickier one. The IRS hasn't explicitly said gas is a qualified expense. But the logic is: if the student lives off campus and needs to commute, the cost of getting to class is part of their housing cost. Some tax professionals argue that gas, tolls, and even car maintenance could be counted, as long as they're reasonable and documented. I'd be cautious — keep receipts, log mileage, and don't push it beyond the room and board allowance. Luna: So the safest play is to use the 529 for a parking permit or a transit pass, because those are fixed costs with a clear receipt. Gas is more of a gray area. Lucas: Right. And remember, you can also use 529 funds to pay for a commuter meal plan if the school offers one, or even groceries, as long as the total doesn't exceed the off-campus room and board budget. But if your student lives at home with you and commutes, the rules are different. Luna: How so? Lucas: If the student lives with parents, the IRS says you can only claim up to the cost of room and board as if they lived on campus — typically the lowest published dorm rate. So you can't take out $14,000 if the on-campus room and board is only $11,000. You're capped at that lower number. And you'd need to have actual expenses — like groceries and utilities — to support the withdrawal. Luna: That makes sense. So for a commuter living at home, parking passes and gas would still count, but the total pool is smaller. Lucas: Exactly. And one more thing — the parking pass has to be for the student's use, not for a parent driving them. If you're chauffeuring your kid to class, that doesn't qualify. Luna: Good clarification. You know, it's interesting — we've talked about a lot of 529 expenses on this show, from laptops to summer camp, but parking and transit are one of those everyday costs that families actually hit first. And it's nice to know the money can work there too. Lucas: Yeah, and it's exactly the kind of practical detail that makes a difference in a family's monthly budget. Speaking of which, I want to mention something briefly — you might have noticed this show doesn't have ads. That's by design. A small group of listeners helps keep it going through buy me a coffee dot com slash fexingo. And honestly, that support is what lets us drill into these specific scenarios every single day. Luna: It's true. We get to focus on what's useful rather than what sells. And we're grateful for that community. Lucas: Alright, back to parking. Let's talk about what happens if you take out more than the room and board allowance. The excess is considered a non-qualified distribution, and you'll owe income tax plus a 10 percent penalty on the earnings portion. Luna: So documentation is key. Keep the receipt for the parking pass, keep the bus pass renewal confirmation, and know your school's cost of attendance number. Lucas: Exactly. And the school's financial aid office publishes that number. For most universities, it's searchable online — just look up 'cost of attendance 2025-2026' plus the school name. That's your ceiling. Luna: What about if the student has a car loan? Can that be paid from a 529? Lucas: No, that's not a qualified expense. The IRS specifically says vehicle purchases and loan payments are not eligible. So the parking pass is fine, but not the car itself. Luna: Clear. What about ride-sharing like Uber or Lyft to get to class? Lucas: That's another gray area. There's no explicit rule against it, but it's harder to justify as a regular commuting cost. A transit pass is straightforward; ride-sharing receipts could look like personal transportation. I'd avoid it unless you have a really strong case, like a student with a disability who needs paratransit. Luna: Better safe than sorry. One last thing — can you use 529 money to pay for a parking ticket? Lucas: Ha, no. Fines and penalties are not qualified expenses, even if they happen on campus. Luna: Didn't think so, but worth asking. So the takeaway: parking permits, bus passes, and potentially gas — if you're careful — can come from a 529, as long as you stay within the school's official room and board budget. Lucas: That's it. And if you're listening and you've got a commuter student heading back to campus this fall, that parking pass is a legit cost. Use the 529, keep the receipt, and check your school's cost of attendance. It might save you a few hundred dollars out of pocket. Luna: And if you want to help us keep covering these niches, you know where to find us. Thanks for being here. Lucas: Next time, we'll look at how 529 plans can cover your child's off-campus summer storage costs. Between you and me, that one surprised me. Luna: I can't wait. See you then.