529 use for Grad School

Our son was recently accepted (and committed to today) to grad school (PhD program in CS).

We are told it is a 5-year, fully-funded program that includes tuition and a monthly stipend.

While we could not be happier, I wonder what we can use our remaining 529 assets for?

Some initial thoughts:

  1. Rent
  2. Computer and/or smart phone
  3. Air transportation to/from school (it is two time zones away)
  4. Car (this would be great!)
  5. If a car is not allowed, can 529 funds be used for day-to-day transportation costs such as bus/subway/uber/lyft?

Any experienced thoughts would be appreciated. A happy day!

1 Like

No car or plane travel. You should be able to take out money up to the cost of living in the dorm for rent. Same with meal plan. Should be able to take that out for groceries. Also computer covered.

Transportation costs are not covered at all.

Appreciate the response although the answer is disappointing…smart phone?

No phone. Tuition, fees, books, housing, meal plan, computer.

1 Like

Can we use the funds to pay for a better apartment than standard?

If not, I am worried we won’t have much to spend the 529 assets on.

If the stipend is payment for services it would be like doing a job as an undergrad, which doesn’t reduce your ability to pay for room and board using the 529 money, you can use it for incidentals, travel, etc or even save it. Even if not payment for services then if your tuition is already covered, the extra payment would be taxable, so I don’t think there is any obligation to spend it on room and board, you can use the 529 money instead.

The actual room and board you can take from the 529 for an off campus apartment will be the amount given in the cost of attendance figures by the university, like an undergrad but usually based on 12 months instead of 9. Here’s an example from UCLA: Financial Aid and Scholarships - Cost of Attendance

3 Likes

For housing, you are limited to whatever they charge for dorms for the semesters he is in school. So if dorms are 3k a semester and he is in school 2 semesters you are limited to 6k. If he is in school for 3 semesters (fall, spring, summer) which he will likely be as a grad student then whatever the school will charge for room and board is the limit of your withdrawal.

You can also transfer funds to other children, withdraw with a penalty, or distribute among certain other family members for their college education including grandchildren. We likely won’t take ours out and just save for grandchildren rather than pay the penalty. Grandchildren can also use it for private school tuition (limit on that I think).

This is a good problem to have - saving too much rather saving too little. We will be in the same boat!

1 Like

For undergrad you can take out the equivalent of the scholarship amount and pay taxes only on the capital gains (no penalties). I’m wondering if this would also apply to fully funded grad programs. They don’t call it a scholarship but it sort of is one.

Time really flies. Some more specific questions.

To recap, my son just graduated from a 4-year undergraduate program and we are fortunate to have some leftover 529 funds.

He is starting a 5-year PhD program (in CS) where he will be a Teaching Assistant (50%) in addition to taking classes. He will be paid a monthly stipend (not sure if for 9 or 12 months) and tuition for the PhD is waived.

With regards to expenses he is responsible for, I think he has to pay for housing and food.

Here are my 529 questions:

  1. He will be living in an off-campus apartment and will be cooking for himself.
    If I use the 529 funds for housing/food, is it the actual amount he spends, or can we use what the university lists as the “cost of attendance” for room/board? The former will require a lot of record keeping (which our son is not good with), the latter is simpler (and may be more money).

  2. If his department buys the books/software/computer/etc that is academically required by his program, is there a way we can use the 529 funds?

  3. Are there any other expenses we can use the 529 for (health insurance/transportation/other fees)?

Hoping there are some easy/specific answers to these questions. He arrives on campus tomorrow.

Thanks.

Does he have a sibling? 529 funds can be transferred to a sibling’s 529 plan.

this is the last kid…this 529 has all the excess.

This is exactly what I want to confirm. If my son is living off campus, do I have to use what he is actually paying for the apt, or can I just use the university’s Cost of Attendance figure?

Also, as a grad student, he is paying rent there for 12 months…the cost of attendance number is only for 9 months. Extrapolate?

1 Like

There should be an official cost of attendance table published with room and board for graduate students. At UCLA that figure of $21,663 (Cost of Attendance | UCLA Financial Aid and Scholarships) is slightly more than 12/9 of the undergraduate rate of $15,951 (Cost of Attendance | UCLA Financial Aid and Scholarships).

The advice from @BelknapPoint was to just use this figure for off campus even if actual rent is more or less. If you are on campus and actual room and board fees charged by the college are higher, then you can use that higher amount instead. But for other expenses like books, you have to use the actual amount paid.

He can use the stipend for anything, including travel. My daughter just left about 2 hours ago for grad school and she also has tuition, fees, insurance paid, plus a stipend. She’ll use her stipend to pay for rent, her car insurance, gas. She has a job too to fulfill her caffeine habit (works at Starbucks) and she’ll eat from there most of the time too.

I thought he could used the 529 for the actual costs of room & board (keeping track) or use the school’s COA. There is no way my kids spent more on food than the cost of the meal plans as they didn’t have that much money! One actually had the meal plan as part of her athletic scholarship, and she couldn’t spend it even though the school had a grocery store and she could buy food, paper products, take out stuff from the cafeteria, eat in the cafeteria, eat at the deli, pay for her boyfriend to enter the cafeteria… When she graduated she left cases of food for the next set of tenants (who were her teammates). Using the school cost might be a better deal than actually keeping track of the amount spent on food.

Check with your plan administrator for what they need to release the funds to you. Copy of the COA? Copy of the lease? Receipts? A simple request from you for $X for rent, food, computer, phone, books?

Is it really a 5 year master’s program? That’s a long time!

Only if you are on-campus can you use a higher actual room and board charge (which I think must be levied by the college). And I don’t think you could add extra food costs outside the meal plan if those take you over the COA.

Basically you can’t live in a luxury off campus apartment and pay for it all with 529 money.

Thanks for all the responses, but I am still unclear how things work. Sorry to be so dense, but it is my son that is getting the PhD (not a masters)

For the first semester of his program, the university my son will be attending has published the following as the Cost of Attendance (COA):

Room & Board $6700
Books & Supplies: $900
Other Expenses: $1600

As stated before, he will be living off-campus and will not be on the university’s meal plan. Tuition is waived but I am not sure if we have to pay for books & supplies.

Based on all this information, when I try to charge my 529 plan, can I just use the above numbers, or do I have to keep receipts for everything and deduct only the exact amounts?
Obviously, if my son spends more than $6700 on Room & Board, only $6700 amount can be deducted from the 529. But what if he spends less than $6700? Can we still withdraw $6700 with no tax consequence?

Additionally, are university health insurance fees covered by the 529?

There are also a number of other fees listed on the COA like AFMFA/Library/Transportation/Service/etc that add up to over $2K/semester. Are these eligible for the 529?

Thanks for the help. It was easier for undergrad because he lived on campus and used the university meal plan, so we sent the 529 checks directly to the school and let them figure out what was covered.

You can just take out the $6700 tax free. Check that is the off campus amount which is often different from (usually higher than) the on campus amount.

You can’t withdraw anything else unless it is required books or mandatory fees that you actually pay for. If these are waived/covered by scholarship then you can’t double dip. You can withdraw 529 money and pay tax on the gains without the additional 10% penalty up to the amount of any scholarship (including the tuition scholarship).

You can’t pay for health insurance or transportation from a 529 (though the health insurance cost may be a tax deduction for him, or possibly you if you pay it and he is still a dependent this year).

Any “other fees” that appear on the tuition bill can be charged to the 529.

For off campus housing and meal/food shopping, print the college’s quoted amount and file that, then have student simply keep every rent and meal/supermarket and restaurant receipt in a shoebox until those limits are reached.

You can only safely apply ACTUAL expenses.

As far as discipline - this is no longer kindergarten, this is adult life. I have my daughter pay out of her pocket, and every other month or so she can dump receipts on my desk if she expects to be reimbursed. I volunteer to do the Excel Sheet so that I have solid documentation in case of an audit. Worked fine since freshman year!

For the privilege of attending University without financial worries I do expect her to not expose me to any tax penalties - no compromises there.

You could get away with buying a new laptop, possibly even printing fees, BTW.

PS - keep the leftover for private school etc of any grandchildren - or possibly second degrees after a change of heart after a few years in a profession. Until then invest it for “growth” again.

The rules are here: https://www.irs.gov/pub/irs-pdf/p970.pdf (pp59-60)

“Expenses for room and board must be incurred by students who are enrolled at least half-time (defined later).
The expense for room and board qualifies only to the extent that it isn’t more than the greater of the following two amounts.

a. The allowance for room and board, as determined by the school, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student.
b. The actual amount charged if the student is residing in housing owned or operated by the school.”

I can see the argument that the expenses must actually be “incurred” but you are allowed to withdraw (a different amount of) room and board expenses when living at home (eg during the pandemic when classes were remote) without having to actually pay rent to your parents.

So I don’t see any real reason to force your kid to keep a pile of receipts, let alone send them to you. It’s vanishingly unlikely that any concern will ever arise if you withdraw the listed COA amount. In any case their bank/credit card statements would surely suffice if there was ever an issue, how much cash do kids spend nowadays?